• The UK economy recorded no growth in the third quarter.

• The pound rallied on Friday as the US dollar fell due to soft inflation figures.

• US inflation rose by 0.1%, below estimates of 0.2%.

The GBP/USD outlook shows further weakness in the UK economy after the Office for National Statistics downgraded its estimate for Q3 growth. Meanwhile, the US dollar remained weak after Friday’s inflation figures came in softer than forecasts. 

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Data on Monday revealed that the UK economy recorded no growth in the third quarter. This was a downgrade from the previous reading of a 0.1% growth. As a result, the pound eased slightly. Nevertheless, the Bank of England will likely remain cautious due to high inflation. A separate report on Friday showed that UK retail sales increased by 0.2%, missing forecasts of a 0.5% increase. 

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Meanwhile, the pound rallied on Friday as the US dollar fell due to soft inflation figures. The US core PCE released on Friday revealed that inflation rose by 0.1%, below estimates of a 0.2% increase. This prompted the greenback to retreat from its weekly highs, giving sterling some relief.

However, the outlook for the pair remains bleak. Last week, the dollar soared after the FOMC meeting, where policymakers cut rates but delivered a hawkish outlook for 2025. The central bank expects to lower borrowing costs by 50-bps next year. This was a deep downgrade from September, when policymakers were ready to cut by 100-bps. Market participants are now waiting to see whether Trump will pass his policy proposals after taking office in January.

GBP/USD key events today

It will be a slow holiday week for the pound. Therefore, market participants will continue digesting last week’s events.

GBP/USD technical outlook: Rebound meets the 1.2601 resistance

On the technical side, the GBP/USD price has rebounded to retest the 1.2601 resistance level. The downtrend paused when bears failed to trade below the 1.2500 support level. However, despite the pause and pullback, the downtrend remains intact since the price trades below the 30-SMA. At the same time, the RSI suggests solid bearish momentum below 50. 

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Moreover, bears have resurfaced at the 1.2601 resistance, ready to resume the downtrend. If this happens, they will aim for a new low below the 1.2500 support. On the other hand, a break above the 1.2601 resistance and the 30-SMA will signal a likely bullish reversal.

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