GBPUSD Bouncing on Hawkish BOE Comments
Hawkish BOE Expectations
GBPUSD is edging higher today as traders respond to hawkish comments from BIE governor Bailey. Speaking at joint New York Fed/ Oxford University event, Bailey warned that the longer inflation remains elevated the harder it is to believe that second round effects will stay subdued. As a result, Bailey warned, the harder it will be for the bank to keep rates on hold and noted that the bank is considering further tightening as an option, it is not off the table.
BOE Warnings on Inflation
However, Bailey did add the caveat that for now, the bank is seeing quite limited pass through from higher energy costs. The issue is that with energy prices having risen again recently, and no progress being made on the US/Iran peace-front, the prospect of inflation staying higher for longer is looking for real. As such, traders are judging that the chances of a further hike from the BOE are higher consequently. Indeed, if energy prices push higher again in response to any fresh escalation of the US/Iran war, then inflation forecasts start to become even more troublesome. Bailey’s comments come alongside hawkish commentary from other members of the MPC this week with BOE’s Breeden and Lombardelli both signalling that they were moving in favour of a further hike given the stickiness in inflation at higher levels. The market is currently ricing in around an 80% chance for BOE rate hike by year end and around 1% worth of tightening over the next year.
Technical Views
GBPUSD
The sell off in GBPUSD has stalled for now just ahead of the 1.3181 level and triangle lows. Near-term, 1.33 is the key hurdle for bulls to clear in order to alleviate downside risks. While that resistance holds, focus is on a fresh break lower and a continuation down to the 1.3010 level next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.