GBP/USD Discussion & Analysis

[City Index]

GBP/USD is currently trading within touching distance of its March 2020 after losses accelerated into the end of last month.

Such key levels rarely break upon first attempt, so it wouldn’t be surprising to see some demand for the Pound around this region. The announcement of a new Prime Minister within the next few hours could support the pair higher by helping rid some of the uncertainty.

However, any potential bounce on the news is likely to be relatively short-lived as concerns over record-high inflation, an energy crisis, and recession forecasts still loom. There appears to be an increasing amount of discussion in recent days that cable could follow EUR/USD towards parity. While we are still some distance away from that major psychological level, the UK’s gloomy economic backdrop could see bearish pressure on GBP persist.

All trading carries risk, but it will be interesting to see how GBP/USD trades around 1.1400 this week, and if we see a sustained bounce or a break lower.

 

[City Index]

It's likely to be volatile few days for GBP/USD with interest rate decisions due from the Federal Reserve and BOE this week.

The pair continues to hover around 1.1400, although its ability to hold the key pandemic-era support level looks at risk given that it's already briefly traded below to its lowest levels since 1985, and direction from here is likely to determined by the tone struck at the two central bank meetings.

While traders have cooled bets on a possible 100bps at this week's FOMC, the Dollar could still extend gains if Chair Powell use his press conference to signal plans for the Fed to increase the length of their hiking cycle. This would likely increase bearish pressure on GBP/USD, and if followed by another recession warning from the BOE on Thursday, losses could accelerate as the pair breaks 1.1400.

However, all trading carries risk, and cable is currently showing signs of being oversold. Although a longer-term rebound is unlikely at this stage as the UK's economic backdrop will continue to weigh on the Pound, surprise dovish comments from Powell might be enough to help spark a short-term bounce on a potential USD pullback.

Either way, it will be extremely interesting to watch how this shapes up over the week.

 

[City Index]

Looks like it could be another volatile few days for this pair with key economic data from both sides of the Atlantic due this week, including British labour market figures at the top of the hour.

Although the data from the UK will play an important role in determining demand for the Pound, US inflation numbers are likely to be the key for cable's near-term direction as Dollar strength remains the main driving force across asset classes.

All trading carries risk, but with the US 10-year yield currently retesting it multi-year highs just above 4%, the CPI print on Thursday might determine whether we see a break higher or a rejection from this resistance level, with the greenback likely to track the move in either direction.

 

[City Index]

An unexpected fall in the unemployment rate to 3.5% looks to be helping GBP/USD edge higher for the time being, despite the BOE's announcement to widen their bond-buying program sending UK yields lower.

Cable currently seems to have found support at the psychologically key 1.10 level, and the lack of major data from the US today could allow bulls to push for a break of yesterday's high and bring the former downtrend support-turned-resistance back in sight.

Of course, all trading carries risk, especially if traders begin to position themselves for further USD gains ahead of the FOMC Minutes tomorrow.

 

[City Index]

With Liz Truss stepping down as PM, the political turmoil that has created additional selling pressure on British Pound may begin to ease up and put the focus back on the Bank of England, who have their next monetary policy meeting in just under 2 weeks.

GBP/USD has managed to hold above its weekly pivot point over the last couple of days, which could point to some bullish sentiment for the Pound. With markets currently expecting interest rates to rise between 75bps and 100bps, a BOE rate hike on the higher-end of this spectrum could help spark a new leg higher.

However, the bullish momentum may be lacking somewhat as the pair failed to break its weekly R1 on Monday and Tuesday. Selling pressure around this level isn’t too surprising as it coincidences with the key support-turned-resistance coming from the March 2020 low. So, if the pair does begin to rally, it will be interesting to see if it can break higher, or if the move once again stalls at this wall of selling.

Of course, it is also worth noting that unlike the Fed and Dollar, a hawkish BOE may not be the best thing for the Pound. Cable actually declined on the UK’s hot CPI print earlier this week, and further policy tightening may add to the recession fears in the UK and limit GBP’s upside.

It is therefore important to remember that all trading carries risk, and a variety of factors beyond monetary policy must be closely monitored.

 

[City Index]

Risk-on sentiment after what seemed like a dovish FOMC statement quickly reversed thanks to the Jerome Powell’s press conference. The Fed Chairman essentially signaled that rates will likely end up even higher than previously expected, and that it was still too early to discuss any change in policy.

The Dollar rallied as a result, and GBP/USD end up extending its move lower for the week after it failed to break its downtrend resistance last Thursday. While the pair has rebounded from its all-time-lows over the past few weeks, the resulting trendline support looks to have created a triangle formation, with cable currently approaching the apex ahead of today’s BOE decision.

However, it is worth noting that given the UK’s heightened recession fears, the Pound may not see the same straightforward rally on a hawkish BOE as the greenback got from the Fed.

All trading carries risk, but it will be interesting to see how GBP/USD reacts, as a break of either trendline opens the possibility to a bigger move.

 

[City Index]

GBP/USD is currently consolidating yesterday’s strong break of trendline support, and with the US NFP report out later today, volatility may continue into the weekend.

While the BOE’s decision to hike by 75bps on Thursday was its largest interest rate increase in 33 years, the overall sentiment surrounding the meeting was relatively dovish, as the CB signalled peak rates are likely to be lower than current market expectations. In contrast, Wednesday’s FOMC saw Chair Powell state that the ultimate level of US rates may be higher than previously anticipated.

This divergence in outlook could keep cable under pressure over the near-term. If today’s NFP report once again signals strength in the American labour market, the pair could find itself retesting the band of support between 1.0924 and 1.1061.

All trading carries risk, but it will be interesting to see if GBP/USD can hold above this level, or if it breaks lower in the near and puts the all-time-low back within range.

 

[City Index]

Today's lower-than-expected UK inflation data appears to have had little impact on the market, with GBP/USD trading relatively flat on the day. However, the pair is continuing to test resistance around 1.2400 after yesterday's attempted break higher following the weak US CPI print stalled around the monthly R1 pivot.

Cable has put together an impressive rebound since the lows in late September, and managed to hold support above its 200-day MA last week after it closed higher at the start of this month for the first time in over a year. This could signal more upside to come for GBP/USD, and bulls remain in control above this level.

Volatility likely to remain elevated with the FOMC's decision due later today, followed closely by the BOE tomorrow. The outcome of both meetings could play a key role in whether cable can break 1.2400 and the monthly R1, or if it begins to form a top and retests the 200-day line.

All trading carries risk, but either way, it will be worth keeping an eye on this pair for the remainder of the week.