GBP/USD remains mired near 1.2700 as central bank decisions loom large

• GBP/USD gained 0.2% and extended into a two-day win run on Tuesday.
• Cable markets are coiling into the midrange as the Fed and BoE race to make rate calls.
• UK CPI update on Wednesday serves as a preview of BoE rate call on Thursday.

GBP/USD stretched into a two-day winning streak on Tuesday, gaining one-fifth of one percent and recapturing the 1.2700 handle, but only just. Cable is paring away last week's losses to recover into a near-term middle ground as Pound Sterling traders brace for a hefty end-of-year docket that includes rate calls from the Federal Reserve (Fed) and the Bank of England (BoE), as well as one last update on UK Consumer Price Index (CPI) inflation.

US Retail Sales figures lurched higher to 0.7% MoM on Tuesday, stoking some mild concern among investors that maybe the Fed doesn't need to pursue an aggressive rate-cutting strategy after all, especially when counting a recent uptick in inflation metrics. Despite this, markets are still broadly pricing in a third straight rate cut from the Fed on Wednesday, with 95% odds favoring a 25 bps rate trim according to the CME's FedWatch Tool.

UK CPI inflation is expected to chill to a sedate 0.1% MoM in November after October's upswing of 0.6%. However, core inflation is proving to be sticky, with core CPI inflation in November expected to clock in at 3.6% compared to the previous period's 3.3%. The BoE will follow up Wednesday's CPI print with its last rate call of 2024 on Thursday. The BoE is broadly forecast to vote eight-to-one to keep its main reference rate on hold to close out the year.

GBP/USD price forecast

GBP/USD has spun out a rough defensive circle on daily candlesticks, with the pair churning into a midrange baked into the 1.2700 handle as Cable traders grapple with a sluggish zone on the low side of the 200-day Exponential Moving Average (EMA) near 1.2820.

The pair has priced in a large technical floor at November's lows at the 1.2500 price level, but 1.2600 is shaping up to be an attractive downside target for bears if markets fail to fully pivot into a risk-on stance and drive the pair back into bull country above the 50-day EMA at 1.2800.

GBP/USD daily chart