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GBP/USD Rate Risks Larger Rebound on Hawkish BoE Comments

GBP/USD Rate Risks Larger Rebound on Hawkish BoE Comments

David Song, Strategist

BRITISH POUND TALKING POINTS

The British Pound pares the decline from earlier this week following a batch of positive data prints coming out of the U.K. economy, and GBP/USD stands at risk of extending the advance from the May-low (1.3204) as a growing number of Bank of England (BoE) officials show a greater willingness to implement another rate-hike in 2018.

Image of daily change for major currencies

GBP/USD RATE RISKS LARGER REBOUND ON HAWKISH BANK OF ENGLAND (BOE) COMMENTS

Image of daily change for GBPUSD

The above-forecast reading for the U.K. Purchasing Manager Index (PMI) instills an improved outlook for the region as service-based activity accounts for more than 70% of the economy, and the fresh developments may encourage the BoE to change its tune at the next meeting on June 21 as Monetary Policy Committee (MPC) board memberSilvana Tenreyrowarns that ‘a few rate rises will be needed’ over the policy horizon.

The comments suggest the BoE is on track to deliver a rate-hike in second-half of 2018 as price growth continues to run above the 2% target, and Governor Mark Carney and Co. may increase their efforts to prepare U.K. households and businesses for higher borrowing-costs as ‘an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon.’

Keep in mind, MPC members Ian McCafferty and Sir David Ramsden are also on the wires later this week, with a slew of hawkish comments raising the risk for a larger recovery in GBP/USD especially as the Relative Strength Index (RSI) continues to move away from oversold territory.

GBP/USD DAILY CHART

Image of GBPUSD daily chart
  • Near-term outlook for GBP/USD has perked up as the bearish momentum unravels, but recent price action raises the risk for range-bound conditions amid the failed attempts to close above the 1.3370 (78.6% expansion) hurdle.
  • Need a closing price above the stated region to spur a more meaningful run at Fibonacci overlap around 1.3440 (38.2% expansion) to 1.3460 (50% expansion), with the next region of interest coming in around 1.3560 (50% expansion) followed by the Fibonacci overlap around 1.3690 (61.8% expansion) to 1.3700 (38.2% expansion).

For more in-depth analysis, check out the Q2 Forecast for the British Pound

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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