GBP/USD could test 1.25 on a negative Dollar reaction to the FOMC decision – ING

Inflation has started to decelerate in the UK. These figures, however, were largely ignored by market participants. The Federal Reserve’s policy announcements are set to move the GBP/USD pair, economists at ING report.

Inflation slowdown not that relevant now

“The November reading showed a smaller-than-expected MoM CPI reading (0.4% vs expected 0.6%), which brings the YoY number to 10.7% from 11.1% in October. Core inflation slowed from 6.5% to 6.3%.”

“The Pound’s reaction to the data has been quite muted, which is not surprising given the wait-and-see approach ahead of today’s FOMC risk event and since the inflation figures do not suggest a different outcome for tomorrow’s Bank of England meeting.”

“Today, Cable will be primarily moved by the FOMC reaction. We expect a correction below 1.2300, but the risks of a negative Dollar reaction are non-negligible: in that case, 1.2500 may be tested before the Christmas break.”

See – Fed Preview: Forecasts from 18 major banks, downshift to 50 bps