Sell GBPUSD on retracement. Target 1.294Following to Bank of England MPC member Vlieghe comment on that says he is ready to cut interest rates if data does not improve last week. Odds of a BOE rate cut have doubled since last Friday and that is leading to more pound weakness as we get the week started. The OIS market now sees chances of a rate cut on 30 January at ~46%, up from ~23% at the end of last week.
UK economic data is going to be a key focus in the lead up to the BOE policy meeting this month so make sure to keep an eye on that in the coming weeks. For today, we'll have UK November GDP figures but it should just reaffirm the economic stagnation in Q4 2019.
As for US Dollar, the Fed are currently on hold now and the recent dot plot suggests that there will be no policy changes in 2020.
In order to consider a rise in rates they will need to see a supported uptick in inflation. Keep an eye out for inflation data out on Tuesday this week. The current expectations for the next Fed meeting is that there is seen a 90% probability of no rate change.
Even though there was a US payroll miss in both the headline and wage prints on Friday, the Dollar Index had still made a pretty decent recovery over the week on the improved non-manufacturing PMI and ADP prints in the week. Furthermore, with the optimism of Phase 1 Trade Deal to be signed has benefited the US Dollar this week.
Therefore, with the strong and fresh sentiment surrounding both currencies, I recommend to Sell GBPUSD with target of 1.291 - 1.294.
