The pound reacted negatively to published data on UK inflation growth. Almost all components of the report were in the "red zone," reflecting a weakening of inflationary pressure.
The significance of this release is hard to overstate, especially considering that on Thursday, December 18, the last Bank of England meeting of the year will take place. There is now no doubt that the central bank will not only lower interest rates but also convey dovish messages, further pressuring the British currency. Under current circumstances, the only thing supporting GBP/USD buyers is the upcoming U.S. CPI report, due on Thursday. If U.S. consumer inflation slows down (against expectations of an increase), the dollar will come under renewed pressure—including against the pound. However, if this report comes in at or above the forecast level (not to mention the "green zone"), the pressure on GBP/USD will likely persist and possibly intensify.
According to data released on Wednesday, the UK's overall consumer price index fell to -0.2% month-on-month (forecast: 0.0%), marking the first negative reading since January this year. This is the lowest value for this indicator since July 2024. Year-on-year, the overall CPI slowed to 3.2%, while most analysts expected it to remain at 3.5%. The figure has decreased for the second consecutive month.
The core consumer price index, excluding energy and food prices, slowed to 3.2% year-on-year in November (the lowest level since December last year), while most analysts expected it to remain at the October level (i.e., 3.4%). In this case, the downward trend is more pronounced as the core CPI has decreased for the fourth consecutive month.
Another inflation indicator—the retail price index—also fell into the red zone. On a month-on-month basis, the figure dropped to -0.5%, updating a two-year low, while year-on-year it fell to 3.8% (this indicator has declined for the fourth consecutive month). The forecasts were set at 0.0% month-on-month and 4.2% year-on-year.
The inflation report has harmoniously complemented the fundamental picture, which is unfavorable to the pound. For instance, UK labor market data also did not support the British currency. Specifically, the unemployment rate rose to 5.1% (the highest level since January 2021), and the number of new jobless claims increased by 20,000 in November—the worst result since July 2024. Meanwhile, the real growth of wages continues to slow down: the main wage indicator (excluding bonuses) decreased to 4.6% year-on-year, its lowest level since June 2022, while including bonuses it fell to 4.7% (the lowest level since June of this year).
The inflation report only added to the one-sided fundamental picture. However, even if this release had come in the "green zone," the baseline scenario for the BoE's December meeting would still have suggested a rate cut. But now, GBP/USD sellers can anticipate a more dovish stance from central bank members.
It should be noted that at the outcome of the November meeting, four (out of nine) members of the Monetary Policy Committee voted for a rate cut. Thus, the option of maintaining the status quo hung by a thread—the fate of the interest rate was decided by the BoE's Governor, Andrew Bailey, who sided with the centrists.
According to forecasts from most analysts, following the December meeting, four MPC members will likely vote to maintain a wait-and-see stance, while five will vote for a rate cut. If the number of "doves" increases, the pound will come under additional pressure. Additionally, the central bank may soften the wording of its accompanying statement. In other words, the central bank might clearly indicate that it will resume monetary policy easing again in the first half of next year. Dovish signals would enable GBP/USD sellers to intensify their pressure on the pair. However, I repeat—only if the U.S. CPI does not negatively impact the dollar.
From a technical perspective, the pair on the four-hour chart is at the middle line of the Bollinger Bands, which coincides with the Tenkan-sen and Kijun-sen lines, and is also above the Kumo cloud. On the daily chart, it is positioned between the middle and upper lines of the Bollinger Bands, but below the Tenkan-sen line and within the Kumo cloud. All this suggests a lack of clear technical signals—neither bullish nor bearish. Short positions should only be considered when the pair consolidates below the support level of 1.3330 (the lower Bollinger Bands line on the H4 timeframe).
