GBP/USD Under Pressure as USD Outperforms – Fed, BOE and Brexit Loom
- GBP/USD faces increased bearish pressure following Friday’s reversal
- US Dollar strengthens ahead of Fed meeting
- BOE expectations and Brexit dispute weighing on the Pound
GBP/USD is back to where it was two weeks ago after having seen a big correction on Friday on the back of end-of-month rebalancing flows favoring the US Dollar. The pair is back below its 4 simple moving averages and the short-term outlook isn’t very promising given both the Federal Reserve and the Bank of England are scheduled to meet this week.
We may see a rebound in GBP/USD if the pair holds above 1.2645 throughout the session but a close above 1.3710 is going to be hard to achieve. The build-up in momentum both in GBP shorts and USD longs over the past few weeks has been pretty consistent and so I would expect there to be a greater follow-through before a reversal can start to form. Stronger support can be found at the 23.6% Fibonacci (1.3577) whilst sellers will likely be targeting a greater move towards 1.34.
GBP/USD Daily Chart
The Dollar continues to outperform at the start of the week as market participants expect the Fed to announce the tapering of its bond-buying given persistent inflation which has seen even Powell getting unsettled in recent weeks despite his many attempts to convince the markets it would be “transitory”. Keeping the short-term outlook bearish is also the fact that markets seem to be in for disappointment from the BOE meeting on Thursday given how they are pricing in over 100 bps of rate hikes in the next year. It’s going to be very hard for the BOE to over-deliver at the meeting with the Pound likely to suffer a blow in every scenario other than an immediate rate hike and a promising hike schedule over the coming months.
There are also Brexit concerns weighing on the Pound as an escalating row between France and the UK over fishing rights unfolds. Macron has called the incident a “test of credibility” after a behind-closed-door meeting in Rome on Sunday. France has threatened to bar British fishing boats from its ports and increase checks on UK exports from Tuesday unless more permits are granted to French boats to operate in British waters
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin