Due to worse UK figures, GBP/USD finds it difficult to maintain its first daily advances in six days at a two-week low. UK GDP shrank by 0.3% in August, while IP/MP decreased in the previous month. The Cable pair is also propelled by rumors that the BOE may prolong its bond-buying program. As hawkish Fed bets favor pair bears, the FOMC Minutes and UK officials’ decisions will be significant.
The GBP/USD currency pair pays little attention to the UK’s dismal August economic data as it oscillates around the 1.1000 level, breaking a five-day decline when markets start in London on Wednesday. The weaker yields and expectations for further support from British authorities may be the cause.
The UK’s Gross Domestic Product fell to -0.3% MoM in August, down from 0.0% predicted and 0.2% the month before. Manufacturing Production (MP) and Industrial Production (IP) declined during the specified month.
Earlier in the day, the Financial Times (FT) fueled the GBP/USD prices by raising anticipations of the Bank of England’s (BOE) protracted bond-buying program. According to persons informed on the conversations, the Bank of England has informally indicated to bankers that it may prolong its emergency bond-buying program through this Friday’s deadline. Governor Andrew Bailey has also cautioned pension funds that they “have three days left” before the assistance stops.
As the Financial Policy Committee (FPC) decided to interfere in the financial market after noticing that market volatility exceeded the bank stress test, it should be highlighted that BOE Governor Andrew Bailey exacerbated the risk-off mindset. For the duration of their intervention, the BOE increased the scope of their gilt-buying program to include inflation-linked gilts (due to finish on 14 October, UK time).
On the other hand, Cleveland Fed President Loretta Mester joined the chorus of hawkish Fed members and fueled the market’s bet on the US central bank‘s future action, defending the US dollar’s purchasers even as the rates declined. Nevertheless, according to the CME’s FedWatch Tool’s most recent readings, market participants are pricing in a roughly 81% possibility that the Fed will raise interest rates by 75 basis points (bps) in November.
Amid these maneuvers, the US 30-year Treasury rates are hovering around 3.91% after reaching their highest level since 2014 the day before, while the US 2-year bond coupons are easing to 4.28%, falling for the second day in a row. The S&P 500 Futures have recovered from the weekly/monthly low, up 0.65% intraday at the latest, thanks to the lower rates and anticipation for further liquidity from both the UK and Japan.
As we go forward, traders of the GBP/USD pair will continue to look for the BOE’s confirmation of the FT article to support a further upward movement. Failure to do so might emphasize the DXY’s strength and reactivate the bears. The Federal Open Market Committee (FOMC) Meeting Minutes’ existence and expectations of the Fed’s aggressiveness are additional factors that are expected to put downward pressure on the GBP/USD pair.
Technical Analysis
For the GBP/USD purchasers, a daily close above the point where the 10-DMA and 21-DMA converge, or about 1.1170, seems to be a difficult nut to crack. However, horizontal support that has been in place for three weeks limits further declines at 1.0830.