GBP/USD rises after Bailey’s hawkish remarks

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<li>BoE&#8217;s Bailey says markets underestimating inflation</li>
<li>Federal Reserve to release minutes later today</li>
</ul>
<p>The British pound continues to rally on Tuesday after recording back-to-back winning days. In the North American session, GBP/USD is trading at 1.2544, up 0.33%. Earlier, the pound touched a high of 1.2559, its highest level since September 6th.</p>
<p><strong>Bailey sends markets hawkish message</strong></p>
<p>Bank of England Governor Bailey testified before the Parliament&#8217;s Treasury Committee earlier today. Bailey had a clear message for the markets, warning that they were underestimating inflation and &#8220;putting too much weight&#8221; on the fact that headline inflation is in decline. Headline CPI dropped to 4.6% in October, down sharply from 6.7% in September. However, much of that slide is due to falling energy prices. The BoE is more concerned with core CPI and services prices which remain stubbornly high &#8211; core CPI dropped from 6.1% to 5.7% in October.</p>
<p>With the battle against inflation clearly not over, Bailey is pushing back hard against market speculation of a rate cut in mid-2024 and has said that cuts remain a long way off. The BoE is still concerned about inflation risks, such as the Israel-Hamas war and a possible spike in energy or food costs. The markets, which have priced in three rate cuts in 2024, are focused on the poor economic outlook and the risk of a recession, which should dampen any appetite in the BoE to raise interest rates.</p>
<p>The Federal Reserve releases the minutes of the November meeting later today. At the meeting, the Fed maintained rates at 5.25%-5.50% for a second straight time and the markets are confident that the Fed is done with tightening and will trim rates in mid-2024. However, the Fed is in no mood to talk rate cuts, with inflation still well above the 2% target. At the meeting, Powell sounded hawkish, saying that inflation was still too high and that the Fed was prepared to raise rates if necessary. The minutes will likely bear a  similar hawkish message and that could provide a boost to the US dollar.</p>
<p>.</p>
<p><strong>GBP/USD Technical</strong></p>
<ul>
<li>GBP/USD is testing resistance at 1.2476. Above, there is resistance at 1.2575</li>
<li>1.2394 and 1.2312 are the next support levels</li>
</ul>
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