GBP/USD rallies as Fed independence threats hammer Dollar

• GBP/USD advances as investors punish the Dollar amid renewed threats to Federal Reserve independence.
• Strong US PPI and Retail Sales fail to lift the Greenback, overshadowed by political uncertainty.
• Markets price Fed on hold in January, but still expect easing later this year.

The British Pound extended its gains on Wednesday as the Greenback is punished by investors due to threats to the Federal Reserve’s independence and a verbal intervention by Japanese officials, boosted the Yen. The GBP/USD trades at 1.3461 up by 0.30%.

Sterling extends gains as political pressure on the Federal Reserve outweighs strong US data releases

The US Dollar reversed course on Wednesday amid Fed’s independence threats by the Trump administration. On Sunday, the Fed Chair Jerome Powell revealed that the accusations are “pretexts” by the White House who’s not happy that the central bank is setting interest rates “based on our best assessment of what will serve the public, rather than following the preferences of the President.”

The US Dollar Index (DXY), which tracks the performance of the buck’s value versus six currencies, is down 0.20% at 98.97.

Inflation on the producer’s side revealed by the US Bureau of Labor Statistics showed that the November’s Producer Price Index (PPI) print came at 3% up from October’s 2.8%, exceeding forecasts of 2.7%. At the same time core PPI for the same period also hit 3% up from 2.9% in the previous month, above forecasts of 2.7%.

At the same time, Retail Sales in November exceeded forecasts of 0.4%, rose by 0.6% MoM, improving from a 0.1% contraction in October, boosted by a rebound of motor vehicle sales and household spending.

According to the data, expectations that the Federal Reserve would hold rates unchanged at the January meeting are at 95%, according to Prime Market Terminal. However, money markets are still seeing the Fed funds rate ending at 3.23%, implying that they are projecting 52 basis points of ease, towards the end of the year.

Federal Reserve policymakers cross the wires

The Minneapolis Fed President Neel Kashkari said that Trump’s Fed actions are related to monetary policy. He still sees a rate cut but says that it is too soon. Chicago’s Fed Austan Goolsbee said that central bank independence is key to low prices, while Philadelphia’s Ana Paulson says that modest cuts “are likely appropriate later this year” if forecasts are met.

On breaking news, the US Supreme Court announced that it would not rule on tariffs today.

Across the pond, the UK docket was light with traders waiting for the release of GDP figures on Thursday. Bank of England’s Taylor said that he expects policy to normalize “at neutral sooner rather than later, as I said on the December minutes.” He added that further rate cuts are in his outlook.

GBP/USD Price Forecast: Technical outlook

The GBP/USD daily chart suggests that the pair is neutral biased. Momentum is also neutralizing as the Relative Strength Index (RSI) hovers near its neutral level, slightly above it.

For a bullish continuation, the pair must clear January 13 high of 1.3494 to extend its gains past 1.3500 with traders targeting January 6 cycle high at 1.3567. A breach of it and the 1.3600 is up next. Conversely, the GBP/USD tumbles below 1.3400 and it would improve sellers’ chances as the 200-day SMA lies at 1.3392. If broken, this could exacerbate a drop towards the 50-day SMA at 1.3305.