(Eren Sengezer – FXStreet)
– GBP/USD has lost its recovery momentum early Thursday.
– Cautious comment on policy outlook from BOE officials limit GBP’s upside.
– Eyes on ECB rate decision, Powell speech and UK PM Truss’ plan on energy.
GBP/USD has managed to stage a rebound late Wednesday but failed to preserve its bullish momentum above 1.1500. The pair stays on the backfoot early Thursday as investors wait for the European Central Bank’s (ECB) rate announcement and FOMC Chairman Jerome Powell’s speech. British Prime Minister Liz Truss is also expected to unveil her plan to tackle the energy crisis.
While testifying before the UK Treasury Select Committee on Thursday Bank of England Chief Economist Huw Pill noted that if they observed quantitative tightening (QT) too much tightness in policy, they could offset that with fewer interest rate increases. On a slightly dovish note, BOE policymaker Silvana Tenreyro said that a more gradual pace of tightening would reduce the risk of overshooting.
Following these comments, GBP/USD touched its weakest level since March 2020 near 1.1400 on Wednesday. With the improving market mood limiting the dollar’s gains in the second half of the day, the pair reversed its direction but buyers remain hesitant to commit to additional pound gains.
The ECB is expected to hike its policy rate by 75 basis points (bps) on Thursday. In case the bank adopts a hawkish outlook and reassures markets that it will remain on an aggressive tightening path, capital outflows out of the dollar could help GBP/USD push higher. It’s worth noting, however, that such a market reaction could lead to a big jump in EUR/GBP and cap GBP/USD’s rebound.
In the American session, FOMC Chairman Jerome Powell is scheduled to speak as well. According to the CME Group FedWatch Tool, markets are currently pricing in an 82% probability of a 75 bps Fed hike in September. This market positioning suggests that the dollar doesn’t have a lot of room on the upside even if Powell were to reaffirm another oversized rate increase at the next meeting.
In the meantime, UK PM Truss will reportedly announce that they will freeze energy prices for households to help them with rising costs. Citing two sources familiar with the matter, Reuters reported on Thursday that the British government could issue as many as 130 new licenses for oil and gas exploration in the North Sea. In case investors are convinced that the government will be able to battle the energy crisis, the British pound could hold its ground against the dollar in the near term.
GBP/USD Technical Analysis
Although GBP/USD stays afloat above the descending regression channel coming from early August, the Relative Strength Index (RSI) indicator on the four-hour chart sits below 50, pointing to a lack of bullish momentum. Furthermore, the pair closed the last two four-hour candle below the 20-period SMA.
If GBP/USD rises above 1.1500 (psychological level, 20-period SMA) and starts using that level as support, it could extend its rebound toward 1.1550 (static level), 1.1575 (50-period SMA) and 1.1600 (psychological level).
On the downside, 1.1470 (upper limit of the descending regression channel) aligns as first support before 1.1420 (static level) and 1.1400 (mid-point of the descending channel, psychological level, static level).
GBP/USD outlook: Sterling is consolidating above new multi-decade low
(Slobodan Drvenica – Windsor Brokers)
Cable remains at the back foot following Wednesday’s brief probe below 2020 low (1.1410) that posted new lowest since 1985.
Subsequent bounce left Hammer candlestick, generally bullish signal, which so far did not provide any positive reaction, as the outlook for pound remains increasingly bearish.
Markets will closely watch the first steps of new UK Prime Minister Liz Truss, who said that the government will set out a bold plan of action to support households and businesses and also to boost domestic energy supply, including both, short and long-term solutions, though she did not provide any detail about the plan.
BOE officials expect new plan to ease short-term inflationary pressure that would partially ease mounting worries as inflation already hit a double-digit levels and according to some forecast, may rise up to 20% if crisis with energy supplies deepens.
The policymakers, however, remain cautious, as some leaked details of the plan signal a massive government spending that would exceed pandemic furlough scheme that could fuel inflation.
Cable returned to red on Thursday, with near-term action so far holding within a narrow range, formed after strong rejections on both sides on Tuesday and Wednesday.
Overall technical picture remains firmly bearish, with extended consolidation likely to precede fresh weakness.
Sustained break of 2020 low would generate strong signal of bearish continuation of larger downtrend from 2007, which was paused for consolidation since 2016 until now and unmask 1985 low at 1.0520.
Near-term action faces initial resistance at 1.1583 (falling 10DMA), ahead of more significant barrier at 1.1610 (consolidation range top / Fibo 23.6% of 1.2276/1.1405), which should ideally cap and keep bearish structure intact.
Res: 1.1541; 1.1583; 1.1648; 1.1693.
Sup: 1.1475; 1.1405; 1.1352; 1.1300.