BoE & Fed Battle it Out as Pound Remains on Offer

Sterling analysis and talking points

• The optimism of the US debt ceiling is unable to keep the volatile pound high.
• Focus on speakers at the Bank of England and the Federal Reserve.
• GBP/USD is behind but technically showing reluctance to commit to one direction.

GBPUSD basic background

The British Pound was unable to pounce on the US debt ceiling optimism as with many G10 currencies as investors remain in the ‘cautious’ camp. Holding onto the safe-haven US dollar for now, the Dollar Index (DXY) is trading in the green on Thursday morning. All in all, with President Joe Biden cutting short his Asia/Pacific trip, House Speaker Kevin McCarthy has stated that a deal is possible. However, until such time as the markets are given more effective and orderly insights into the deal negotiations, I expect the US currency to continue to be favored.

The BoE’s interest rate outlook hasn’t changed much this week, and the peak rate is still hovering around it 42 bits per second for 2023 (see table below). We could see some short-term price volatility later this morning as BoE Chief Economist Howe Bell and Governor Andrew Bailey are due to make their comments. Governor Bailey acknowledged concern about wage rates and mentioned raising rates when necessary to bring down inflation. More upbeat statements today could support the pound in a risk off environment.

Bank of England interest rate odds

Source: Refinitiv

Today’s economic calendar is dominated by US economic data and the Fed speaks with focus on the jobless claims data.

Economic calendar

source: DailyFX Economic Calendar

Technical Analysis

GBP/USD daily chart

Chart created by Warren VenkitasI.G

GBP/USD daily price action now sees bears eyeing the 50-day moving average (yellow) in conjunction with 1.2400 Psychological support handle. This major confluence may hold but a daily candle close below this level could be due to the negative reports of the US Debt Ceiling.

The Relative Strength Index (RSI) has now fallen below the midpoint level of 50, pushing the pairs momentum marginally into bearish territory.

Key resistance levels:

Key support levels:

• 1.2400 / 50-day MA (yellow)
• 1.2345
• 1.2275

IG client mixed sense

IG Customer Reviews Data (IGCS) shows that retail traders are not so squeamish at the moment tall or short on GBP/USD with 50% From net long and net short traders (as of this writing). At DailyFX, we usually take a view contrarian to crowd sentiment which results in a cautious action in the short term.

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