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GBP/USD Rate Risks Larger Rebound on Hawkish BoE Comments

GBP/USD Rate Risks Larger Rebound on Hawkish BoE Comments

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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 β€˜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 β€˜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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Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

--- 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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