British pound rises as consumer confidence rises, US inflation falls

The British pound is higher on Friday. In the North American session, GBP/USD is trading at 1.2751, up 0.34%.

UK consumer confidence rises 

The UK consumer remains in a sour mood but the pessimism eased in January. The GfK Consumer Confidence Index to -19, up from -22 in December and just shy of the consensus estimate of -21. This is the highest level since January 2022, which gives an idea of just how pessimistic consumers have been about the UK economy over the past two years. On the brighter side, consumer expectations of personal finances for the next 12 months were positive for the first time in two years, a sign that consumers are feeling better about the economy, which could translate into increased consumer spending.

As with other central banks, there is a large discrepancy in rate expectations between the Bank of England and the markets. Investors have priced in four quarter-point cuts this year, which would lower the benchmark rate to 4.25%. The BoE, however, hasn’t budged in its guidance and at last month’s meeting went as far as warning that further tightening might be necessary. The BoE held rates last month but three MPC members voted to raise rates by a quarter-point, which means there is strong support among Bank policy makers to remain hawkish. At the same time, with inflation on the decline and the Fed and ECB jumping on the rate-cut wagon, Governor Bailey will be feeling pressure to signal that rate cuts are on the table. The BoE has kept rates unchanged for three straight times and meets on February 1.

US Core PCE Price Index eases to 2.6%

The week wrapped up with good news on the inflation front. The Core PCE Price Index, one of the Fed’s preferred inflation indicators, fell to 2.9% y/y in December, down from 3.2% in November and just below the 3.0% consensus estimate. This was the lowest rate since March 2021. Monthly, Core PCE prices rose 0.2%, up from 0.1% in November and matching the consensus estimate.

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GBP/USD Technical

  • GBP/USD is testing resistance at 1.2740. Next, there is resistance at 1.2772
  • There is support at 1.2711 and 1.2679

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Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.