GBP/USD maintains its position below 1.2650, focus on US GDP data

• GBP/USD remains calm due to lowered inflation from the United Kingdom.
• UK CPI and Core CPI YoY eased at 3.9% and 5.1%, respectively.
• Several Fed officials have denied speculations on the Fed’s rate cuts and called it premature.

GBP/USD hovers around 1.2640 during the Asian hours on Thursday, attempting to recover its recent losses registered on Wednesday. The Pound Sterling (GBP) faced a challenge due to downbeat inflation from the United Kingdom (UK). Additionally, the US Dollar (USD) witnessed gains on improved economic data from the United States (US).

UK Consumer Price Index (CPI) (YoY) eased at 3.9% from the previous figures of 4.6%, against the expected readings of 4.4% in November. The CPI (MoM) dropped 0.2% MoM in November from a flat 0.0% in the previous reading and below the 0.1% estimated. The Core CPI (YoY) rose 5.1% versus 5.7% prior and the market consensus of 5.6%. Investors will further observe Gross Domestic Product and Retail Sales data scheduled to be released on Friday.

The US Dollar Index (DXY) experiences a decline, hovering around 102.30, despite the presence of higher US Treasury yields. The 2-year and 10-year yields on US bond coupons are at 4.36% and 3.86%, respectively, at the time of writing. The market is reflecting speculation fueled by the dovish sentiment surrounding the US Federal Reserve’s (Fed) interest rate trajectory in early 2024, which is contributing to the downward pressure on the Greenback.

However, it’s crucial that several Fed officials have emphasized a cautious approach and discouraged premature speculations on policy rate cuts. The dynamic interplay between interest rates, central bank sentiment, and market expectations continues to shape the movements of the US Dollar.

The US Existing Home Sales Change indicated a notable monthly rate increase of 0.8% in November, representing a significant rebound from the previous decline of 4.1%. Adding to the positive economic indicators, CB Consumer Confidence experienced substantial growth in December, marking the most significant increase since early 2021, rising from 101.0 to 110.07.

Looking ahead, market participants are likely awaiting key economic releases on Thursday for further insights into the US economy. These include US Gross Domestic Product Annualized (Q3), Initial Jobless Claims, and the Philadelphia Fed Manufacturing Survey.