GBPUSD Analysis – December-20-2023

Reuters – The British pound recently experienced a significant drop, falling by over 0.5% to go under $1.27. This decrease is primarily attributed to growing expectations that the Bank of England will cut interest rates shortly. The latest Consumer Price Index (CPI) report from the UK is a key factor driving this sentiment. It revealed that inflation slowed to 3.8%, the lowest since September 2021, and under the anticipated 4.4%. Additionally, the core inflation rate, excluding volatile food and energy prices, decreased to 5.1%, the lowest since January 2022 and below the expected 5.6%.

Due to these developments, traders strongly bet on the Bank of England reducing interest rates next year. They foresee a total cut of 143 basis points. This prediction includes an assumption of five quarter-point cuts, with a 70% likelihood of a sixth one. However, it’s important to note that BOE Governor Andrew Bailey has consistently stressed the need to maintain higher interest rates for longer. Despite the anticipated rate cuts, the current inflation rate in the UK is still nearly double the BOE’s target of 2% and remains the highest among the Group of Seven (G7) countries.

GBPUSD 4-Hour Chart