Official data released this week showed that the UK economy continued its slowdown in the third quarter, with gross domestic product (GDP) rising by a mere 0.1% quarter-on-quarter, matching the initial estimate. This indicates that momentum has gradually weakened since the robust growth seen earlier in the year. Notably, amid the overall slowdown, the UK household sector presented a contradictory picture: the household savings rate fell by 0.7 percentage points to 9.5% in the third quarter, hitting a new low in over a year. This decline was primarily driven by tax increases outpacing income growth and inflation, squeezing households' real disposable income. However, household consumption expenditure rose by 0.3% quarter-on-quarter during the same period, marking the fastest growth in nearly a year. This phenomenon of “declining savings and rising consumption” suggests that some households may be drawing on savings to maintain spending levels. It reflects both the financial pressures stemming from high inflation and tax hikes, while also highlighting the resilience of domestic demand within the economy. The weakening growth momentum is closely tied to recent policy adjustments. On the fiscal front, previously implemented tax hikes have weighed on households and businesses, while market expectations of further tax increases in the government's second budget at the end of November have dampened economic activity over the past few months. Against this backdrop, the Bank of England (BoE) voted by a narrow 5-4 majority at its December meeting to cut its base rate by 25 basis points to 3.75%. This rate cut was not regarded as the beginning of an aggressive easing cycle. The BoE emphasized that subsequent policy decisions would be strictly data-dependent and that inflation trends would remain under close scrutiny. The BoE projected zero GDP growth for the fourth quarter but maintained its assessment that the economy's underlying potential growth rate remains around 0.2% per quarter.

The US market reacted mildly to the latest weekly data released in the US labor market, which delivered a mixed message. Initial jobless claims fell to 214,000 from 224,000 the prior week, below market expectations of 223,000. Meanwhile, the number of continuing unemployment claims rose from 1.885 million to 1.923 million, while the four-week moving average of initial claims edged down slightly from 217,500 to 216,750. Although the dollar rebounded in the short term, it remains under sustained pressure as markets anticipate further monetary policy easing by the Federal Reserve in 2026, thereby providing solid support for the GBP/USD. The US Dollar Index, which measures the dollar against a basket of six major currencies, hovered near 97.7. Markets widely expect the Federal Reserve to keep interest rates unchanged at its January meeting, with the CME FedWatch Tool showing only a 15.5% probability of a rate cut. Following the December policy decision, Fed Chair Jerome Powell stated that the central bank “stands ready to watch the economy's path.” Nevertheless, investors anticipate the Fed will resume easing later this year, with current market expectations pointing to two rate cuts in 2026.

GBP/USD: On the daily chart, the price has formed a dark cloud cover pattern. The MACD line and the signal line are about to form a death cross, and the RSI is retreating from its highs, signaling an impending correction. It is highly likely to break below the EMA12 level, with supports near the EMA12 and the middle Bollinger Band around 1.341 and 1.33, respectively. The current RSI reading stands at 67, indicating bullish market sentiment. On the hourly chart, the Bollinger Bands are widening downward, moving averages are diverging downward, and the price has broken below the EMA50. MACD's upward momentum is gradually weakening, with the MACD line and the signal line forming a death cross and falling below the zero line, signaling a short-term bearish trend. Support levels are near the EMA200 and key psychological levels, approximately at 1.343 and 1.34. The RSI reading is 37, reflecting pessimistic market sentiment, and its highs have been gradually declining. Therefore, it is recommended to go short at highs.

Trading direction: Sell

Entry price: 1.349

Target price: 1.29

Stop loss: 1.36

Support: 1.3, 1.29, 1.28

Resistance: 1.35, 1.36, 1.373