The GBP/USD pair has witnessed a modest increase to 1.2550. This week, trading volume is low because of the approaching Christmas holidays. The pair has been consolidating, and there’s been minimal price movement as the market adapts to this quiet holiday period.
Similarly, the US Dollar Index (DXY) is mostly flat. It’s hovering above 108.00 and isn’t showing any significant changes. Traders are waiting for more economic data to come out.
Factors Affecting the US Dollar’s Strength
In the bigger picture, the US Dollar has a strong position. Expectations for a slower pace of interest rate cuts from the Federal Reserve next year are continuing to support the Greenback. Fed officials are taking a more cautious approach to reducing rates. This shift is due to a slower-than-expected disinflationary process and the ongoing uncertainties around new policies under President-elect Donald Trump.
The latest Fed projections indicate that the federal funds rate could drop to 3.9% by the end of 2025. This hints at several rate cuts next year, but fewer than what the markets expected before last week’s decision.
Upcoming Economic Data and Its Impact
Looking at the economic calendar, Initial Jobless Claims data will be released on Thursday. The number of new claims is expected to decline slightly to 218K. This could bring some volatility to the US Dollar.
However, despite these factors, the Pound remains vulnerable. It has fallen below the key upward-sloping trendline around 1.2600 and is showing signs of potentially going down further. Later, in the first week of January, the Nonfarm Payrolls figures from December in the US will be closely watched.
GBP/USD Technical Outlook
Technical Indicators Pointing Downward
GBP/USD continues to face significant downside pressure. The Relative Strength Index (RSI) has dropped below the 40.00 mark. If it stays below this level, the likelihood of further downward momentum increases.
Also, the Moving Average Convergence Divergence (MACD) is showing red bars. This suggests that the bears are quite strong in the market.
Key Support and Resistance Levels
On the downside, the next support level for GBP/USD is seen around 1.2300. On the upside, if the pair can get back to the 1.2600 mark, it could mean a recovery. This 1.2600 level will be a crucial point to watch for any potential upward momentum.
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