POUND STERLING TALKING POINTS
- BoE pushes rates to 5.25%.
- Incoming economic data will be more crucial than ever moving forward.
- GBP struggles to find a bid post-announcement.
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GBP/USD FUNDAMENTAL BACKDROP
The Bank of England (BoE) decided to hike interest rates by 25bps (see economic calendar below) in line with consensus although probabilities for a 50bps increment gained traction prior to the announcement. Taking into account this mornings slump in services PMI’s as well as the recent drop in inflationary pressures, the British pound has been on the backfoot of recent. Coupled with the risk off sentiment in global markets and the flock towards the safe haven USD, cable continues to fall despite the BoE’s rate hike.
The vote split changed slightly from the previous decision with 7 members in favor of a hike and only 1 opting to keep rates on hold (previously 2). That being said, the BoE’s Haskel and Mann favored a 0.5% hike, showing appetite for sustained aggressive monetary policy by certain individuals. Core inflation has been cited as the most crucial aspect of inflation that is yet to show significant declines while Quantitative Tightening (QT) measures to be decided on next month.
In summary, the announcement supported a dovish bias and although the BoE left the door open for further rate hikes, the conviction in their tone has moderated somewhat. Data dependency as with many other global central banks will be the decider going forward and with CPI forecasts being revised lower, sterling may be in for further downside to come.
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GBP/USD ECONOMIC CALENDAR (GMT +02:00)
Source: DailyFX Economic Calendar
TECHNICAL ANALYSIS
GBP/USD DAILY CHART
Chart prepared by Warren Venketas, IG
Price action on the daily cable chart above is testing swing lows last seen in late June this year with the Relative Strength Index (RSI) swiftly approaching oversold territory. This region may coincide with the 1.2500 psychological handle and yesterday’s candle close below trendline support (black) may augment this move from a technical analysis standpoint.
Key resistance levels:
- 1.2848
- 50-day moving average (yellow)
- 1.2680
Key support levels:
BEARISH IG CLIENT SENTIMENT
IG Client Sentiment Data (IGCS) shows retail traders are currently 59% LONG on GBP/USD (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment resulting in a short-term downside bias.
Contact and followWarrenon Twitter:@WVenketas