Cable (GBP/USD) News and Analysis
- FOMC, BoE rate announcements and NFP provide plenty event risk
- UK economic landscape amid ‘cost of living crisis’ puts BoE in a tight spot, weighing on sterling
- Key technical levels considered ahead of central bank week
Busy Week as the Fed, BoE and NFP Take Center Stage
The economic calendar reveals a flurry of high importance risk events starting with US Services PMI for April, the Fed and BoE interest rate decisions and ending the week off with US non-farm payroll data. UK S&P Global manufacturing PMI data earlier today provided a glimmer of hope as it printed at 55.8, higher than the March low of 55.2 (weakest figure over the last 12 months). Nevertheless, more than 60% of manufacturers raised prices in April in response to rising input costs while lackluster demand from the EU; linked to longer delivery times, customs checks and higher shipping costs weighed on the manufacturing industry.
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GBP/USD Technical and Fundamental Factors to Consider this Week
Despite having witnessed a massive drop from 1.3000 all the way to 1.2410, cable appears to have consolidated at current levels, which is understandable as the two respective central banks are set announce their interest rate decisions later this week (Fed tomorrow and BoE on Thursday).
Such a ‘wait and see’ approach is quite normal in the lead up to massive meetings as both central banks decipher how large their rate hikes will be. Markets expect the Federal Reserve Bank to hike by 50 basis points, taking the Fed funds rate to 0.75% - 1%, with a 6% outside chance of a 75 basis point hike.
Implied Rate Hike Probabilities via Fed Futures
Source: Refinitiv
The Bank of England (BoE) are a little further along in the rate hiking process but the economic landscape proving all the more difficult with the ‘cost-of-living crisis’. The UK is experiencing its highest inflation in 30 years and economic headwinds on top of that. The IMF forecasts the UK to be hardest hit among G7 nations when it comes to GDP growth and inflation expectations for 2022. Raising rates is a two-edged sword as it is crucial to quell rising inflation but raises the cost of living as interest-linked repayments (car, mortgage) will increase.
Implied Rate Hike Probabilities (BoE)
Source: Refinitiv
Therefore, a standard 25 basis point hike is unlikely to propel GBP/USD materially higher and if we are to see a lift in the pair, the main motivating factor could materialize in the form of bullish disappointment from those looking for a 75 basis point hike from the Fed. The long-term downtrend is still very much intact, meaning any lift in cable may present opportunities to re-enter the trend once the dust has settled.
Resistance sits at 1.2700 with support coming in at 1.2410. Bearish continuation plays would look towards a second level of support at 1.2250 before the psychological level of 1.2200.
Source: TradingView, prepared by Richard Snow
The GBP/USD monthly chart highlights the 1.2200 level which has been effective in providing a pivot point in the past. Therefore, if the bearish theme is to continue, there is still a fair distance to go to the downside.
GBP/USD Monthly Chart
Source: TradingView, prepared by Richard Snow
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--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
