Disappointing retail sales statistics in Britain have dampened the enthusiasm of GBP/USD bulls. The indicator declined by 0.3% month-on-month in October, contrary to Bloomberg experts' forecasts of its expansion. This has reignited discussions about a recession in the UK economy. The downturn will dictate how quickly and deeply the Bank of England will cut rates. The fate of GBP/USD depends on it.

The successes of the pound and the euro against the U.S. dollar in November are primarily attributed to the slowdown in American inflation. The market has completely lost faith in the statements of Federal Reserve representatives regarding a possible resumption of the tightening cycle of monetary policy and has begun to bet on its easing in 2024. The process unfolded so rapidly that the expected date for the first act of monetary expansion shifted from July to May. Derivatives are giving decent odds to March.

Monetary stimulus is excellent news for risky assets. Moreover, central banks usually act in unison. Following the Fed, the ECB and the Bank of England will also cut rates. As a result, U.S. stock indices sharply rose, global risk appetite intensified, and the dollar became caught in a wave of sell-offs as a safe-haven asset. The futures market is counting on a reduction in the ECB deposit rate and the BoE repo rate by mid-2024, although September was previously mentioned.

Market expectations for ECB and BoE rates

However, is there not too much euphoria present in Forex? Typically, the basis for easing monetary policy is a worsening economic situation. And the Old World, due to the wars in Ukraine and the Middle East and the associated energy crisis, feels much worse than the New World. London and Frankfurt may make a dovish pivot sooner than Washington. Then why sell the U.S. dollar against the pound and the euro?

Investors also do not believe Christine Lagarde's statements that thinking about rate cuts is premature and Andrew Bailey's assertion that risks of inflation acceleration persist, just like the rhetoric of Fed officials. A recession may be needed for the Fed to ease monetary policy. While a downturn is unlikely, markets expect a soft landing for the U.S. economy. However, according to Deutsche Bank research, there have been two years between the start of the monetary tightening cycle and a recession in the last 11 cases. This means that this time the downturn will come precisely in March 2024.

Expectations of a federal funds rate cut may be too high. The market ran ahead of itself, buying GBP/USD. It's time to take a sober look at things and cool down a bit. This increases the risks of short-term consolidation.

The technical inability of GBP/USD bulls to rewrite the November high and establish themselves above the pivot level at 1.2475 indicates their weakness. At the same time, a drop in quotes below support at $1.245 will be a basis for short-term pound sales. It is not worth getting carried away with them, and a rebound from $1.242 and $1.239 should be used for a reversal and entry into long position.