GBP/USD is stuck near 1.20 as investors seem indecisive

There has not been a large move in the GBP/USD pair since the middle of December, and the Pound remains anchored to the psychological level of 1.20, despite some major US macro news being released this week.

FOMC minutes confirm the hawkish bias, fail to lift the USD

On Wednesday, the FOMC’s December meeting minutes showed that the majority of participants agreed that “much more evidence” is required to prove that inflation is on the decline. The magazine also cautioned investors that officials aim to ensure markets do not see the slower pace of rate rises as a precursor to a policy reversal.

More information from the minutes revealed that Fed officials were not pleased with the rise in stock prices (easing of financial conditions) before the meeting, and they warned against an “unwarranted” relaxation loosening of financial conditions.

“Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.”

The market has been rather persistent in its pricing of more Fed tightening to 4.95/5.00% next spring/summer, followed by a 200bp unwinding cycle within two years, leaving Fed funds at a neutral rate of 3% beyond 2025. In the following weeks and months, this arrangement will undoubtedly be challenged.

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“That Fed story will remain a key driver of the dollar and global asset market trends in 2023,” said analysts at ING in a note.

The ADP will release the monthly private-sector employment data for the United States later in the day. Weekly Initial Jobless Claims and Goods Trade Balance statistics will also be analyzed for new inspiration in the afternoon.

UK food inflation is still elevated

In the UK, take-home grocery sales surpassed £12.0 billion for the first time in history for the four weeks ending December 25th, according to figures from Kantar.

Sales grew 7.6% month-over-month and 9.4% year-over-year, the fastest pace recorded since February 2021, with mince pie sales growing in value by 19% yearly and Christmas pudding sales increasing in value by 16% and in volume by 6%. In December, grocery price inflation decreased by 0.2% to 14.4%, marking the second consecutive monthly decline.

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However, volume-based sales are down 1% year-over-year, indicating that consumers continue to experience difficulties due to soaring prices.
It looks like the resistance is now at previous highs/lows at around 1.2110. If broken to the upside, we might see another leg higher, targeting 1.2250.

On the downside, the support zones could be near 1.20 and at 1.19 afterward.