- The British pound recovers on the back of a hawkish BoE as investors increase the odds of a December’s rate hike.
- Positive market sentiment spurred by US corporate earnings and “stable” energy prices weaken the buck.
- Rising US T-bond yields reinforce the market’s expectations of a bond taper announcement at the Fed’s November meeting.
The GBP/USD stage a recovery of Monday’s losses, advances 0.53%, trading at 1.3799 during the New York session at the time of writing. Solid corporate earnings, stability around energy prices, and central banks tightening monetary policy keep investors on a positive tone.
The abovementioned triggered a dollar sell-off, witnessed by the US Dollar Index that measures the greenback’s performance against six peers, slides 0.30%, sits at 93.71, well below the 94.00 threshold, despite increasing odds of a bond tapering announcement by the Federal Reserve.
Meanwhile, the US 10-year Treasury yield climbs three basis points, up to 1.614%, reinforcing the markets expectations of the Federal Reserve tightening monetary conditions.
BoE and Fed monetary policy divergence, favors the British pound
Nonetheless, the Bank of England (BoE) and the Federal Reserve (Fed) diverge in their monetary policies. The BoE is already reducing its bond purchasing program, while the Fed could announce it in the November meeting. But as of the last couple of weeks, BoE policymakers like Michael Saunders and Governor Andrew Bailey have been vocal about higher prices, signaling that the bank could hike rates before the end of the year, giving an edge to the British pound over the greenback.
The US macroeconomic front featured the September Housing Starts for September, which rose to 1.555M lower than the 1.62M expected, trailing the August 1.58M. Further, the Building Permits increased to 1.589M shorter than the 1.68M foreseen by analysts.
The fall in the reading is due to supply-chain constraints, shortages of skilled employees, and elevated material costs that continue to challenge builders.
GBP/USD Price Forecast: Technical outlook
The GBP/USD pair reached a daily high around 1.3833 which tested the 200-day moving average (DMA) at 1.3843 but retreated the move below the 100-DMA that lies at 1.3806. The Relative Strength Index (RSI) at 61 indicates the pair still has upward pressure but is under heavy selling pressure, as dollar bulls defend the 1.3800-50 area.
For GBP/USD buyers to lift the pound higher, they will need a daily close above the 100 and the 200-DMA. In that outcome, the first resistance would be 1.3900. A breach of the latter could propel the pair towards the 1.4000 figure.
On the flip side, failure around the 1.3800-50 area could open the way for downward pressure that can tumble the pair, firstly towards the 50-DMA at 1.3710, and then the October 11 high at 1.3673 support.