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GBP/USD slumps as UK CPI cools to 3.2%

GBP/USD is falling after cooler-than-expected UK inflation data reinforced expectations of a BOE rate cut, while the US dollar rose as investors await US inflation data tomorrow.

Sterling is set for its largest one-day decline since early November as investors added to bets that the BOE will cut rates this week. UK CPI cooled to 3.2% YoY in November, its lowest level since March and down from 3.6% in October.

Data from earlier in the week also indicated that the UK labour market was softening, as the unemployment rate reached its highest level since 2021 and private-sector pay growth was the weakest in almost five years in the run-up to the budget.

Cooler inflation, combined with easing wage growth and the disinflationary effects of the Budget, means a 25-basis-point rate cut on Thursday is effectively a done deal.

The market has also lifted expectations for next year's rate cuts, with two fully priced in and a 72% chance of a third.

Gilt yields fell following the data, pulling GBP lower.

Meanwhile, the USD is rising but remains close to its lowest level since early October, which it reached on Tuesday. The US dollar index is down around 9.5% this year, on track for its steepest annual declines in 2017. Traders are looking ahead to US inflation data on Thursday for more clues over the Fed's next move following mixed jobs data yesterday.

USCPI is expected to remain at 3% year-on-year in November. If CPI comes in line with expectations, the Fed will not feel the pressure to cut rates again in the next few meetings.

You had some fun table data yesterday, showing the US added 64,000 jobs in November, but the unemployment rate also rose to 4.6%.
 

GBP/USD forecast – technical analysis

GBP/USD recovered from the 1.30 November low, running into resistance at 1.3455 before rebounding sharply lower. The price broke below the 200 SMA, which, together with the bearish engulfing candle, keeps sellers hopeful of further declines.

Sellers will seek to settle below the 200 SMA, extending the move lower to 1.3250, the 50 SMA, and horizontal support. A break below here brings 1.32 into play and 1.3140, the August low.

Buyers would need to overcome the 200 SMA and the horizontal resistance at 1.3355. A rise above 1.3455 is needed to create a higher high and bring 1.35 into focus.
 

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Oil prices jump as U.S.- Venezuela tensions intensify.

Oil has jumped2% on Wednesday, lifted by a rising risk premium and supply concerns after President Trump ordered the blockade of sanctioned oil tankers linked to Venezuela. This could affect 590k barrels of oil supply a day, much of which is destined for China.

The move follows the seizure of blacklisted oil tankers off the coast of Venezuela last week and an increase in US military personnel in the region.

Still, gains could be limited as investors continue to watch the Russian-Ukrainian peace talks. Optimism of a peace deal pulled oil prices sharply lower in recent sessions. An agreement could see Russian restrictions ease and oil supply rise at a time when the markets are already concerned about a supply glut next year.

Oil prices have fallen throughout the year as OPEC+ has ramped up supply to increase market share and as signs of demand weakness emerge in China, the largest oil importer.

EIA crude oil inventory data is due later today.
 

Oil forecast- technical analysis

Oil trades within a falling channel since mid-July. The price faced resistance at 60.00, rebounded lower, and dropped to 55.00, a level last seen in May 2021. The price found support here and has recovered to higher levels, although the downtrend remains intact for now.

Buyers will look to extend the recovery above 57.00, the November high, before bringing 60.00 back into focus, the 50 SMA, the falling trendline resistance, and the round number. A rise above here creates a higher high, bringing 62.50 into focus.

Sellers will look to break below 55.00 to extend the bearish trend, creating a lower low and bringing 50.00 round number into play.
 

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