GBP/USD rallies as Fed independence threats hammer US Dollar

The British Pound (GBP) extends its gains on Wednesday as the Greenback is punished by investors due to threats to the Federal Reserve’s (Fed) independence and a verbal intervention by Japanese officials, which boosted the Yen. At the time of writing, 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 threats to the Fed’s independence from the Trump administration. On Sunday, Fed Chair Jerome Powell argued that the accusations are “pretexts” by the White House, which is unhappy 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% to 98.97.

Inflation on the producer’s side, as revealed by the US Bureau of Labor Statistics, showed that 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%.

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

Expectations that the Federal Reserve will 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 52 basis points of easing towards the end of the year.

Federal Reserve policymakers cross the wires

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 Fed Austan Goolsbee said that central bank independence is key to low prices, while Philadelphia Anna Paulson said 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 the January 13 high of 1.3494 to extend its gains past 1.3500, with traders targeting the January 6 cycle high at 1.3567. A breach of it, and the 1.3600 is up next. Conversely, if GBP/USD tumbles below 1.3400, 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.