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British Pound (GBP/USD) Breaks Supportive Trendline Ahead of Bank of England (BoE) Meeting

British Pound (GBP/USD) Breaks Supportive Trendline Ahead of Bank of England (BoE) Meeting

Nick Cawley, Strategist

British Pound (GBP) Price Outlook

  • GBP/USD rattled by US dollar strength.
  • Thursday’s Bank of England meeting now key.

Sterling has started the week on the back foot and remains at multi-week lows printed during Friday’s sell-off. The ongoing strength of the US dollar continues to weigh on the pair, and with the Fed now taking a hawkish turn, all eyes will be on the Bank of England this Thursday to see if the UK central bank warns against the recent rise in inflation. While all BoE policy measures are expected to left unchanged, last week’s ONS figures showed inflation jumping to 2.1% in May y/y, compared to 1.5% in April, the highest level in nearly two years and above the central bank’s 2% target. While the BoE is expected to maintain its loose monetary policy, any hint that the central bank is worried about inflation will spark fresh talk that interest rates may rise sooner than currently anticipated.

GBP/USD has broken below a long-running bullish trendline, suggesting further weakness ahead. Initial support at 1.3800 is currently being tested and a confirmed break lower will open the way to a cluster of lows around 1.3670. The pair remained heavily oversold and this may temper any short-term weakness.

The CPI and Forex: How CPI Data Affects Currency Prices

GBP/USD Daily Price Chart (April 2020 – June 21, 2021)

British Pound (GBP/USD) Breaks Supportive Trendline Ahead of Bank of England (BoE) Meeting

Retail trader data show 66.19% of traders are net-long with the ratio of traders long to short at 1.96 to 1. The number of traders net-long is 2.86% higher than yesterday and 34.30% higher from last week, while the number of traders net-short is 4.07% higher than yesterday and 34.10% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

Traders of all levels and abilities will find something to help them make more informed decisions in the new and improved DailyFX Trading Education Centre

What is your view on Sterling– bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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

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