GBPUSD Forecast: Central Bank ’Double’ to Govern Sterling’s Fate

GBPUSD Prices, News and Analysis

  • BoE monetary policy decision at 11:00 GMT – no change expected.
  • Governor Carney’s Mansion House speech due at 20:15 GMT

IG Client Sentiment data show that retail are 72.5% net-long of GBPUSD – a contrarian bearish set-up – but recent positional changes gives us a mixed trading bias.

GBPUSD Driven Lower by an Increasingly Hawkish Fed Backdrop

GBPUSD is trading at a fresh seven-month low, knocked lower Wednesday by hawkish commentary from Fed Chair Powell who said that the case for ‘continued gradual increases in the federal fund rate is strong’. Speaking at the Central Bank Forum in Sintra Powell highlighted the strength of the US economy, putting another two 0.25% rate hikes back on the table.

On the other side of the pair, Sterling has picked up slightly against other currencies but is currently unable to compete with the rampant greenback. The Bank of England has two chances today to put forward their views on the UK economy and perhaps give Sterling traders a clearer view on the future path of UK interest rates. The MPC will announce their latest monetary policy measures at 11:00 GMT with no changes expected. The accompanying text may give some more clarity before the market turns its attention to the BoE governor Mark Carney’s annual Mansion House speech at the Lord Mayor’s Bankers and Merchants dinner, with the text of the speech released at 20:15 GMT.

A clearer picture on growth – expected to remain weak in the second quarter – and the central bank’s updated views on Brexit, may well shape short-term direction in GBPUSD.

GBPUSD Down Nearly 9% in Two Months.

After depreciating nearly 9% against the US dollar since mid-April, Sterling nears a confluence of support between 1.30884 – 50% Fibonacci retracement – and the October 8 swing low at 1.30272. A neutral or mildly hawisk tone from the central bank should see these levels hold in the short-term and perhaps see the pair test the cluster of resistance from 1.33018 to 1.34581.

GBPUSD Daily Price Chart (October 2017 – June 21, 2018)

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— Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

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