GBP/USD trading is imminent; the central bank voting results are expected to cause a stir

Technical Factors Show Stalemate Between Bulls and Bears, Key Support Levels Become Trading Dividing Lines

The GBP/USD daily chart indicates that the exchange rate is at a critical point of indecision between bulls and bears. Traders should focus on two key support levels: above 1.3455 and below 1.3355. If GBP/USD effectively breaks above 1.3455, upward potential may be unlocked; conversely, a break below 1.3355 increases the risk of a reversal in the rally. The current market is in an extremely sensitive position, awaiting catalyst signals next week.

Bank of England Rate Cut Imminent, Vote Results Expected to Surpass Expectations

On Thursday (December 18), the Bank of England’s December rate decision will be announced. Widespread market consensus anticipates a 25 bps rate cut to 3.75%, marking the fourth cut this year and the lowest in three years. However, the most closely watched aspect is that economists expect the vote result to be a 5-4 split for the second consecutive time, reflecting serious internal divisions within the BOE.

The situation may yet change. Considering recent persistent weakness in UK economic data, the likelihood of some hawkish members changing their stance is rising. The UK GDP unexpectedly contracted by 0.1% in October, marking two consecutive months of decline; at the same time, the UK unemployment rate rose to its highest since early 2021, with signs of economic slowdown becoming more evident.

Inflation Eases Unexpectedly, Central Bank Clears Hurdles for Rate Cuts

On December 17, the UK November Consumer Price Index (CPI) rose by 3.2% year-over-year, the smallest increase in 8 months and well below market expectations of 3.5%. Core CPI, excluding food and energy, also underperformed, rising 3.2% annually, below the expected 3.4%. Once the inflation data was released, GBP/USD immediately saw its largest single-day decline this month, dropping over 0.8% to 1.3311 intraday, hitting a new weekly low; UK 10-year government bond yields also fell more than 7 bps to 4.44%.

Additionally, the UK budget announced on November 27 also clears obstacles for the central bank’s actions. The fiscal measures (including freezing rail fares, extending fuel tax relief, reducing household energy bills, etc.) are expected to further lower inflation by up to 0.5 percentage points in Q2 next year, leaving room for continued easing.

US Data Fluctuates, Fed Rate Cut Expectations Rise Again

On Tuesday (December 16), US November non-farm payrolls increased by 64,000, exceeding market expectations of 45,000, but October non-farm payrolls were revised downward to a decline of 105,000, far worse than the expected decrease of 25,000. Notably, the US November unemployment rate rose to 4.6%, above the expected 4.4%, reaching a four-year high.

Signs of a weakening labor market are evident, and with the Fed having stopped balance sheet reduction and launched the Reserve Management Purchase (RMP) program, the overall monetary policy tone is clearly leaning toward easing. Fed “three key officials” like John Williams recently signaled dovish views, considering the inflation impact from tariffs largely as one-off, while downside risks to employment have increased in recent months. The upcoming US November CPI release is expected to show a year-over-year increase of 3.1%, slightly above the previous 3%.

GBP/USD Short Squeeze Opportunity Emerges, Focus on Post-Decision Trend

For GBP/USD, investors have already priced in expectations of a rate cut by the BOE, and the size of GBP short positions held by asset managers is at its largest in over a decade. Once the BOE vote results are announced, if signals indicate that the rate cut cycle is nearing its end, a “very intense” short squeeze could be triggered, further boosting GBP/USD. Market forecasts suggest the BOE may cut rates once more before the end of April next year, but the wording of the actual vote announcement will be crucial in determining the future direction.