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Sep 22 - 10:55 PM

GBP/USD - COMMENT-Sterling Approaches BoE Perched Above Critical Support

By Andrew M Spencer  —  Sep 22 - 09:12 PM

Sterling is poised above critical 1.3600 support heading into Thursday's Bank of England policy meeting, with the U.S. dollar looking strong and GBP charts negative.

The positive market response to a more hawkish Federal Reserve nL1N2QN1LU saw the U.S. dollar firm with stocks and commodities on Wednesday. GBP/USD closed 0.3% lower, just above major supports around 1.3600, ahead of the BoE rate decision.

The BoE is expected to leave policy settings on hold, as the COVID furlough scheme expires at the end of September, clouding the outlook for employment and the economy nL8N2QO4FN.

Inflationary pressures are building as a surge in natural gas prices impacts the food industry nL8N2QO10E.
The focus will be on the BoE's assessment of whether the pressures are temporary or more structural nL8N2QO25O.

The USD is strong, benefiting from safe-haven flows when markets are spooked and general demand when markets are optimistic or Treasury yields firm.
The major upcoming issue for the dollar is the U.S. debt ceiling, which is expected to be voted on next week nL1N2QO1JR. A debt default, which looks unlikely, would hit the USD.

GBP/USD has support at 1.3600, a weekly base three times since August, with a double weekly bottom from February and July at 1.3566/72.
Technically a sustained break of 1.3550 would open the door to 1.3166, 38.2% of the 2020-2021 rise.

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Source:
Refinitiv IFR Research/Market Commentary

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