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Wait-and-See Bank of England (BoE) to Offer GBP/USD Little Relief

Wait-and-See Bank of England (BoE) to Offer GBP/USD Little Relief

2018-09-11 15:30:00
David Song, Strategist

British Pound Talking Points

GBP/USD pulls back from a fresh weekly-high (1.3087) even as Bank of England Governor Mark Carney extends his tenure until the end of January 2020, and the pound-dollar exchange rate may continue to consolidate ahead of the central bank meeting on September 13 as the Monetary Policy Committee (MPC) is widely expected to keep the benchmark interest rate on hold.

Image of daily change for major currencies

Wait-and-See Bank of England (BoE) to Offer GBP/USD Little Relief

Image of daily change for gbpusd

The British Pound is back under pressure following the limited reaction to the U.K. Employment report, and GBP/USD may continue to face headwinds over the remainder of the week if the BoE tames bets for an imminent rate-hike.

Image of bank of england interest rate decision

Despite growing hopes for an imminent Brexit deal, the MPC may merely stick to the same script as ‘any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent,’ and the central bank may largely endorse a wait-and-see approach for the remainder of the year after delivering a 25bp rate-hike at its last meeting in August.

Unless the BoE shows a greater willingness to deliver another rate-hike in 2018, the British Pound may find little relief following the meeting, with more of the same from Governor Carney & Co. likely to dampen the appeal of Sterling as it seems as though the MPC will stick to its current course of delivering two rate-hikes per year.

Image of IG client sentiment

Keep in mind the IG Client Sentiment Report continues to show a skew in retail sentiment as 66.3% of traders are net-long GBP/USD, with the ratio of traders long to short at 1.97 to 1. The retail crowd has been net-long sinceApril 20 when GBP/USD traded near the 1.4050 regioneven though price has moved 7.8%lower since then. The number of traders net-long is 3.7% lower than yesterday and 17.2% lower from last week, while the number of traders net-short is 5.6% lower than yesterday and 29.7% lower from last week.

The recent updates highlight waning interest ahead of the BoE meeting, but the persistent slant in retail positioning continues to offer a contrarian view to crowd sentiment, with the broader outlook for GBP/USD still tilted to the downside as the exchange rate preserves the bearish formation from earlier this year. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

GBP/USD Daily Chart

Image of gbpusd daily chart
  • Keeping a close eye on the monthly range ahead of the BoE meeting as GBP/USD appears to be making another attempt to test the August-high (1.3145), but the lack of momentum to close above the 1.3030 (38.2% expansion) to 1.3090 (38.2% retracement) region may keep the exchange rate within the downward trending channel from earlier this year.
  • Need to see a move below the 1.2890 (50% expansion) to 1.2950 (23.6% expansion) region to open up the Fibonacci overlap around 1.2750 (61.8% expansion) to 1.2800 (50% expansion), with the next downside region of interest coming in around 1.2630 (38.2% expansion) to 1.2640 (23.6% retracement), which sits just beneath the 2018-low (1.2662).

For more in-depth analysis, check out the Q3 Forecast for the British Pound

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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.