• Business activity in the UK stalled in December.

• Prices charged by UK companies accelerated at the fastest rate in nine months.

• Traders are almost fully pricing a 25-bps Fed rate cut this week.

The GBP/USD outlook shows a recovery from Friday’s lows after UK PMI data revealed accelerating price pressures. However, the long-term outlook for the pair remains bleak amid dollar strength and a stalled UK economy. 

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Data on Monday showed that business activity in the UK stalled in December. The flash composite PMI held at 50.5, slightly below the forecast of 50.7. However, the report also showed that prices charged by companies accelerated at the fastest rate in nine months, indicating a spike in inflation. Market participants focused on this as it might keep the Bank of England cautious. 

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However, other data on Friday revealed that the UK economy unexpectedly contracted in October. Therefore, the outlook for the economy remains uncertain. The BoE will hold its policy meeting on Thursday, and markets expect policymakers to keep rates unchanged. However, in 2025, things might change if data continues pointing to soft economic demand. 

Meanwhile, the greenback remained steady after a strong week where markets slashed bets for Fed rate cuts in 2025. However, traders are almost fully pricing a 25-bps rate cut this week. 

At the same time, the looming shift in leadership in the US will likely keep the dollar strong. Trump’s policy proposals might come into effect in 2025, boosting the greenback and weighing on the pound. 

GBP/USD key events today

• US flash manufacturing PMI
• US flash services PMI

GBP/USD technical outlook: Price rebounds after meeting the 0.618 Fib

On the technical side, the GBP/USD price has rebounded for the first time since it broke below its bullish trendline. The rebound comes after the price fell to the 0.618 Fib retracement level, which acted as a strong support level. During this decline, the price broke below the 1.2651 support level, which might now act as resistance. 

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Notably, the price trades well below the 30-SMA and the RSI is below 50, a sign that bears are in the lead. Therefore, the downtrend will likely continue after the brief recovery. The price might reverse at the 1.2651 level or continue to the 30-SMA before dropping. A continuation of the downtrend will allow bears to target a major support level at 1.2500.

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