Pound Moved Higher As Markets Discounted The Recent Boe Monetary Policy

Pound Moved Higher As Markets Discounted The Recent Boe Monetary Policy

  • Trade Ideas
  • Weekly Signals
  • 2022, 13 August

Brief:

Last week, Sterling Pound moved higher as markets discounted the recent BOE Monetary Policy release where the committee hiked interest rates by 50bp and signaled the potential for an equally large hike in September while committing to take all necessary action to tame inflation and get it back to the 2.0% target. Towards the end, the Pound currency moved lower after the UK government held talks with the energy bosses about high bills, but PM Boris Johnson said that it is for his successor in Number 10 to "make significant fiscal decisions". Elsewhere, a Conservative commentator has claimed that the US has taken favor with Brexit Britain due to its lack of ties to the EU.

The GBP/USD pair comes under renewed selling pressure on Friday and drops to the 1.2100 neighbourhood during the early North American session.

The US dollar makes a solid comeback on the last day of the week and moves away from its lowest level since late June touched the previous day. This turns out to be a key factor exerting downward pressure on the GBP/USD pair, which fails to benefit from mostly better-than-expected UK macroeconomic releases.

The Preliminary GDP report, however, showed that the UK economy contracted by 0.1% in Q2 as compared to the 0.8% rise in the previous quarter. The dismal figure validates the Bank of England's outlook that a prolonged recession would start in the fourth quarter and acts as a headwind for the British pound.

The USD, on the other hand, witnesses a short-covering move amid the uncertainty over the size of the next rate hike by the Federal Reserve. Data released this week showed signs of easing inflationary pressures in the US and forced investors to trim bets for a 75 bps Fed rate hike move in the September meeting.

That said, the recent hawkish comments by several Fed officials suggest that the US central bank would stick to its policy tightening path. This, in turn, prompts traders to lighten their USD bearish bets, though a combination of factors could cap gains and help limit the downside for the GBP/USD pair.

Nevertheless, spot prices reverse a major part of the weekly gains and remain at the mercy of the USD price dynamics. Next on tap would be the release of the Preliminary Michigan US Consumer Sentiment Index, which might influence the buck and produce some trading opportunities around the GBP/USD pair.

Suggestion:

Sell below 1.3200 for 1.1415 and 1.1000

Else

Buy above 1.3200 for 1.3700 and 1.4375

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