GBP/USD Resilient at Key Support Cluster, Awaiting US Data Dump
GBP/USD Analysis
The British Pound has posted a remarkable recovery from September's record lower, which however faltered last week, after the latest central bank decisions. Both the US Fed and the Bank of England slowed the pace of tightening, but only one of them offered clear hawkish communication.
That was the Fed, which maintained its guidance "for "ongoing increases", while officials upgraded their views on the appropriated policy path. They now expect rates to peak at 5.1%, from 4.6% previously, suggesting another 75 basis point of hikes. [1]
The Bank of England raised interest rates by 0.5% with a 9-3 majority, with two of the dissenters voting for a pause. Once again its communication left much to be desired, since it repeated that increases in the bank rate "may be required", but also stands ready to act "forcefully" if inflationary pressures persist. [2]
Furthermore, the BOE expects a prolonged recession ahead and today's data showed that the UK economy already contracted in the third quarter, by 0.3% q/q. On the other hand inflation remains shockingly high, which calls for further tightening, but the CPI moderation in November offers some ray of hope.
The policy differential is unfavorable for GBP/USD, which stays on the back got during the current week, close to the critical area of 1.2050-1.1953. This includes the EMA200 and the 23.6% Fibonacci of the September low/December high advance. Daily closes below it, can accelerate a correction to the 38.2% level (1.1648), although a catalyst would likely be needed for such moves.
On the other hand, GBP/USD shows resilience above this important support cluster, which allows it to resume its momentum. It does not inspire much confidence under current condition though, for higher highs (1.2247) and sustained strength past (1.2267).
In any case, the next leg of the move will be determined by the key economic releases from the US, which include the final Q3 GDP and the latest PCE inflation figures.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 21 Dec 2022 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20221214.htm | |
| Retrieved 01 Dec 2023 https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/december-2022 |
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