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Pound Breaks Down
GBPUSD is trading heavily lower today as USD continues to rally across the week. Debt ceiling uncertainty and recent Fed hawkishness have conspired to underpin USD recently, going against the prevailing view held by major players that USD is likely to head lower near-term. Given the bull run we’ve seen in GBP recently some correction lower looks reasonable near-term.
Fed in Focus
Hawkish BOE expectations tip GBP to gain over USD in coming month with the BOE expected to continue hiking into the summer should inflation remain around current levels. However, in recent days, we’ve heard a more hawkish message from some Fed members who’ve pushed back against calls for rate cuts later in the year with some calling for further tightening near-term. Consequently, pricing for the June meeting has taken a hawkish shift recently with odds of a fresh Fed rate hike sitting around 30%.
Two-Way BOE Risks
On the GBP side, the main focus is inflation. The BOE signalled last time around that further tightening will likely be necessary, dependent on the path of inflation. With that in mind, next week’s UK CPI reading will be closely watched. If CPI is seen holding around current levels, hawkish BOE expectations should drive GBP higher near-term. Meanwhile, if we see any meaningful drop in inflation GBP might weaken on a dovish repricing of UK rates.
Technical Views
GBPUSD
The correction lower in GBPUSD from recent highs around 1.2659 has seen the market breaking back under the bull channel top. Price is now testing support at the 1.2437 level. This is a key near-term level for the market with a break lower here opening the way for a deeper move down to 1.2270 next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.