GBP/USD Forecast: BoE and FOMC Could Spark Fresh Selling in Cable

• GBP/USD forecast leans bearish as traders eye central bank meetings and UK macro data
• Key focus on BoE and FOMC rate decisions this week, particular about their forward guidance
• Key levels to watch: 1.25 support and 1.28 resistance

Friday’s weak UK data saw GBP/USD slide towards the 1.26 handle, as EUR/GBP rebounded sharply from 0.82 to above 0.83, ending the week in positive territory. This recovery in EUR/GBP also supported EUR/USD, which climbed back to $1.05 ahead of a pivotal week for global central bank decisions. Investors anticipate what could be the final burst of volatility in 2024, with the Federal Reserve, Bank of England, and other major central banks unveiling their monetary policy plans for the upcoming year. The GBP/USD forecast remains bearish in this high-stakes environment.

US Dollar Strength Ahead of Potential Hawkish FOMC Cut

Last week’s US CPI data met expectations, but a hotter-than-anticipated PPI raised concerns. Nonetheless, markets are confident in a 25-basis-point rate cut at the Federal Reserve’s final meeting of the year on Wednesday. With this move almost fully priced in, the focus will be on the Fed’ forward guidance.

The critical question is whether the Fed will pause its rate-cutting cycle in early 2025 or continue trimming at 25-basis-point intervals. Jerome Powell’s recent comments, highlighting reduced labour market risks but persistent inflation, have led to speculation of a “hawkish cut”. Traders will scrutinise Powell’s remarks at the post-meeting press conference and the updated economic projections, which could significantly influence sentiment.

President-elect Trump’s fiscal agenda next year could steer the Fed towards a more measured easing trajectory through 2025. Such policies would likely keep the US dollar supported, reinforcing a bearish GBP/USD forecast.

BoE Rate Decision Looms Large for GBP/USD Forecast

While the Federal Reserve takes centre stage midweek, the BoE’s Thursday decision could be equally critical for GBP/USD. Following last week’s weak UK GDP and other soft macro data, markets widely expect the BoE to cut rates by 25 basis points to 4.50%. Monday’s Global and UK PMIs, Tuesday’s wage data, and Wednesday’s CPI figures will further inform the central bank’s outlook.

The BoE’s tone will be pivotal. A dovish cut, emphasising ongoing risks to growth, could weigh heavily on the pound, while any hints of caution in easing policy could provide some support. With both the Fed and BoE decisions landing within 24 hours, GBP/USD volatility is virtually guaranteed.

GBP/USD Technical Analysis

Source: TradingView.com

Technically, the GBP/USD forecast tilts bearish after last week’s failure to hold above the 1.28 resistance zone. The pair’s retreat below 1.2715/20 has opened the door to further downside, with immediate support seen around the 1.26 level. A decisive break below this point could trigger a retest of the bullish trend line near 1.25, a psychologically significant area where the cable found support in November after briefly dipping to 1.2487.

On the upside, resistance lies in the 1.2800–1.2870 range, which aligns with the 200-day moving average and previous support levels. Any recovery in GBP/USD would need to clear this zone to signal a shift in momentum.

Summary

The GBP/USD forecast remains bearish as traders brace for a critical week dominated by central bank decisions. While a hawkish Fed cut is expected to keep the dollar strong, the BoE’s dovish tilt could further pressure the pound. Key data releases earlier in the week will shape expectations, adding to the volatility.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R