Created on December 23, 2024

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Bullish View

• Buy the GBP/USD pair and set a take-profit at 1.2800.
• Add a stop-loss at 1.2400.
• Timeline: 1-3 days.

Bearish View

• Set a sell-stop at 1.2550 and a take-profit at 1.2400.
• Add a stop-loss at 1.2800.

The GBP/USD exchange rate was in the spotlight after the Bank of England (BoE) and the Federal Reserve delivered different interest rate decisions. The pair bottomed at 1.2480 and then rebounded slightly after the encouraging PCE inflation report.

PCE Inflation and Central Bank Decisions

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The GBP/USD pair reacted to the Federal Reserve’s decision last week. The committee expressed concerns about elevated inflation and decided to slash interest rates by 0.25%. Beth Hammack, a committee member, voted to leave rates intact.

The Fed’s dot plot hinted that the bank would deliver another two interest rate cuts in 2025. That was a big change, considering that the bank predicted four cuts in 2025 as it maintained its focus on the labor market.

On the positive side, the US released encouraging PCE inflation data. According to the statistics agency, the headline PCE inflation index rose from 2.3% in October to 2.4% in November, missing the median estimate of 2.5%. It dropped from 0.2% to 0.1% on a MoM basis.

The core PCE, which excludes the volatile items, dropped from 0.2% to 0.1% on a MoM basis and remained unchanged at 2.8% annually. These numbers are important because they are the Fed’s favorite inflation report.

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The GBP/USD pair also reacted to the Bank of England decision. Unlike the Fed, the BoE left interest rates unchanged at 4.7% as it expressed concerns about inflation. A few days before the meeting, data by the Office of National Statistics (ONS) showed that the headline CPI rose from 2.3% to 2.6% in November.

This week will see thin volumes and no major economic numbers because of the upcoming Christmas holiday. On Monday, the key data to watch will be the UK GDP report and US consumer confidence.

GBP/USD Technical Analysis

The GBP/USD pair bottomed at 1.2481 after the Fed and BoE decisions and US inflation data. It formed a small double-bottom pattern at 1.2480. A double bottom is a highly popular bullish reversal chart pattern.

The 50-day moving average is supporting the pair’s downside trend. It has also moved below the 23.6% Fibonacci Retracement level, and formed a series of lower lows and lower highs. Therefore, the pair may stage a brief comeback because of the double-bottom pattern. It will be targeting the double-bottom’s neckline at 1.2800 if this rebound happens.

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