Dollar Rally Outshines Hawkish BOE Comments
USD Pressuring GBP
GBPUSD is ending the week heavily lower, pushed down by the sizeable Dollar rally we’ve seen this week amidst strengthening December rate hike expectations. A strong showing in recent NFP and CPI data, accompanied by hawkish Fed commentary, has seen USD breaking out across the board. Indeed, the rally in USD has somewhat taken the shine off hawkish developments within the UK space. This week, GDP was seen rising at its fastest pace in two years while hawkish comments from BOE deputy governor Lombardelli suggest that further BOE tightening is incoming.
Hawkish BOE Comments
Speaking on Wednesday on the back of strong GDP data, Lombardelli noted that further tightening appears likely given limited evidence of weakening inflationary pressures. She also said that inflationary risks appear skewed to the upside and higher unemployment may do less to dampen price pressures than the bank has seen previously due to a disparity between skills and available jobs.
Bearish Risks
Against this backdrop, traders are looking for a further hike from the BOE this year. However, with the prospect of further tightening from the Fed dominating markets, and now the prospect of a larger .5% being floated, GBPUSD is likely to struggle to find any upside. Near-term, only some pushback from dovish Fed members and/or data undershoots will be likely to stem the current downside we’re seeing.
Technical Views
GBPUSD
Price is now testing the supporting trendline of the large triangle formation which has framed price action over the last year. If we break below, 1.3181 is the next structural support to watch ahead of the 1.3139 YTD lows. Below there, 1.3049 is the deeper bear target. Topside, bulls need to get back above 1.33 to alleviate near-term bearish risks.
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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.