Anna 
The pound experienced a significant decline in early European trading on Tuesday following the release of data by the Office for National Statistics (ONS) highlighting a notable deceleration in average income for the three months leading up to November. Despite economic fragility both domestically and internationally, the labor market demonstrated resilience during this period. However, lower-than-anticipated wage growth is instilling increased confidence among investors regarding an imminent interest rate cut by the Bank of England (BoE).
A report from the Office for National Statistics revealed that the UK economy contracted in the third quarter of 2023, thrusting the nation into a technical recession. The Bank of England’s confidence in any growth in the final quarter of 2023 is waning as interest rates rise and the cost of living crisis deepens. The combination of a more subdued inflation outlook and apprehensions about additional economic challenges may prompt policymakers at the Bank of England to reconsider their stance on tightening monetary policy.
GBP/USD is poised for a sharp correction as the escalating crisis in the Middle East heightens the appeal for safe-haven assets. Concurrently, the U.S. dollar index (DXY) surged to a fresh one-week high, with anticipation building ahead of U.S. retail sales data. The upcoming retail sales figures are expected to offer more insights into the timing of the Federal Reserve’s (Fed) planned rate-cutting cycle, influencing market sentiments and currency dynamics.
