On Thursday, December 12th, the pound continued to consolidate against major currencies, but due to market expectations that the Bank of England would adopt a more gradual pace in its policy easing cycle than other central banks in Europe and North America, the pound remained strong among major currency pairs.

The Bank of England may cautiously cut interest rates, and the strong performance of the pound has attracted attention

The inflation in the UK service industry remains high, which has led the Bank of England to maintain a cautious pace in cutting interest rates. Megan Greene, an external member of the Bank of England's Monetary Policy Committee (MPC), warned in her latest comments that she doubts whether the Bank of England's inflation target can be achieved by the end of our forecast period (i.e. three years later).

In addition, the increased government spending and higher employer costs reflected in the first budget of the Labour government have also heightened uncertainty about the inflation outlook. The market expects UK employers to pass on higher National Insurance employer contributions to consumers.

The market's expectation that the Bank of England will cut interest rates at a moderate pace has also contributed to the strong performance of the pound against the US dollar this year, which is different from the performance of other European currencies such as the euro and Swiss franc, which have fallen by 4.9% and 5.5% respectively.

For the Bank of England's policy meeting announcement on December 19th, the market expects the bank to keep interest rates unchanged at 4.75%, but expects three rate cuts in 2025.

In terms of economic data, the market is paying attention to the UK's October monthly Gross Domestic Product (GDP) and factory data, which will be released this Friday, to understand the current economic health of the UK.

Due to dovish expectations from the Federal Reserve, the pound rose slightly

On Thursday, December 12th, the pound rose slightly against the US dollar during the London trading session, but still struggled to break through the key resistance level of 1.2800. As market expectations for the Federal Reserve to cut interest rates at next week's monetary policy meeting increase, the US dollar index fell to around 106.60, boosting the performance of the pound/dollar.

Federal Reserve expectation: According to the CME FedWatch tool, the market is almost entirely betting that the Fed will lower interest rates by 25 basis points to 4.25% -4.50% at next week's meeting. The dovish expectations of the Federal Reserve have further heated up due to the release of the US November Consumer Price Index (CPI) report on Wednesday, which showed that inflationary pressures are consistent with expectations.

US CPI data: The data shows that annualized overall and core inflation (excluding volatile food and energy prices) increased by 2.7% and 3.3% respectively, in line with market expectations. The overall inflation growth is the highest in four months, indicating that the process of inflation decline has come to a halt. However, the moderate increase in rental prices has supported the market's dovish expectations for the Federal Reserve.

Important Data Release: The market is closely monitoring the US November Producer Price Index (PPI) data and initial jobless claims data for the week, which will be released at 21:30 on December 12th.

Regarding GBP/USD technology, analyst Dua provided the following interpretation:

The GBP/USD has been consolidating within a narrow range around 1.2750 over the past week. At present, the exchange rate is above the 20 day moving average and around 1.2740;

RSI on the 14th: hovering in the range of 40.00-60.00, indicating that the GBP/USD is in a sideways trend;

Bottom support: It is expected that the exchange rate will find support at the upward trend line around 1.2500, which extends from the low point of 1.2035 in October 2023;

Upper resistance: The 200 day moving average is the key resistance.

Daily chart of GBP/USD