Respective monetary policies a key catalyst in the GBPUSD decline


The market is expecting a 25bps hike from the BoE on Thursday. This increase is juxtaposed against an expected 75bps by the Fed on Wednesday. I.e. the BoE is dovish relative to the Fed, and this reflects in GBPUSD


In the top weekly chart, using each region's respective 2-yr note's yield as proxies for monetary policy is enlightening. Their spread has declined since the beginning of 2022 (blue down trendline). The middle weekly chart shows the decline in GBPUSD (black down trendline). Finally, the bottom indicator shows the correlation coefficient between the two series at a very strong 0.87.

The daily chart shows cable trading between its bottom blue and red bands in the bearish zone. The Bollinger bands are starting to diverge, suggesting that volatility is increasing to the downside. This pick-up in momentum highlights the starkly different positions between the two central banks. The BoE is cognisant of its inflation problem but is less aggressive as economic data weakens. E.g., today's UK unemployment rate increased slightly from 3.7% to 3.8%. The expectation was for an improvement to 3.6%. Moreover, GDP m/m printed at -0.3% against an expectation for a 0.2% increase and Industrial Production m/m capitulated to -0.6% (+0.3% was forecast).

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Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.


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