- GBP/USD reverses early Asian session gains on firmer DXY, sidelined of late.
- Market’s cautious optimism fails to impress Cable buyers amid fears of BOE’s disappointment.
- US President Biden will meet his UK counterpart on Wednesday.
- Fed, BOE both are up for 0.75% rate hike but qualitative updates will be the key to fresh impulse.
GBP/USD struggles to remain above 1.1400 as traders begin the key week comprising the monetary policy announcements from the US Federal Reserve (Fed) and the Bank of England (BOE). That said, the quote seesaws around 1.1430-25 while defending the early Asian session rebound from the lowest levels since 1985, tested the previous day.
The Cable pair’s initial recovery could be linked to the Brexit-positive headlines. However, recently mixed comments from US President Joe Biden and anxiety ahead of the key events seem to test the GBP/USD bulls.
“British Prime Minister Liz Truss has agreed with her Irish counterpart Micheal Martin that an opportunity remains for a negotiated outcome to issues around the Northern Ireland protocol,” Reuters quotes Irish broadcaster RTE TV during the weekend.
US President Biden said, “I'm more optimistic than I have been in a long time.” The national leader also stated that they are going to get control of inflation. On the same line are the covid updates from China as it unlocks Dalian a city in China’s Liaoning province while witnessing zero coronavirus cases in Beijing and one, versus zero the previous day, outside Shanghai’s quarantine zone. However, US President Biden’s readiness to back Taiwan in case China attacks Taipei and the hawkish hopes for the Fed seem to keep the GBP/USD bears hopeful.
It should be noted that the hawkish hopes from the Fed have recently escalated after the University of Michigan's preliminary readings of Consumer Sentiment for September came in at 59.5, up from 58.6 in the prior month while easing below 60.0 market forecasts. With the firmer US data, the odds of the Fed’s 75 basis points rate hike (bps) rose to nearly 80%, around 82% by the press time, while the market’s expectations of a full one percentage increase in the Fed rate rose to 18%.
While the Fed hawks are likely to exert downside pressure on the GBP/USD prices, expectations that the BOE will be forced to act more bullish, due to Lizz Truss’ election as the new Prime Minister of the UK, seem to challenge the pair sellers. Also, hopes that the UK-US ties will be stronger and offer additional support to the Cable pair. British Prime Minister Liz Truss will hold a full bilateral meeting with Joe Biden at the United Nations General Assembly on Wednesday rather than meeting the U.S. president at Downing Street on Sunday, her office said on Saturday, per Reuters.
Given the holiday in the UK and a light calendar elsewhere, GBP/USD may witness a sluggish session. However, the Fed vs. BOE play will be critical for the pair traders to watch this week. Not only the interest rate announcements, which are mostly priced in, but the economic forecasts and speeches from the respective central bank leaders are also crucial. Should Fed Chair Powell disappoint US dollar bulls and the BOE shows more optimism, the odds of the GBP/USD rebound can’t be ruled out.
Technical analysis
Although the oversold RSI conditions triggered a GBP/USD rebound from a four-month-old support line, around 1.1330 by the press time, the recovery remains elusive until the quote stays below the 21-DMA resistance level near 1.1590.
