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Oct 27 - 10:55 PM

GBP/USD - COMMENT-Sterling Needs A Hawkish BoE Hike To Break Higher

By Andrew M Spencer  —  Oct 27 - 09:00 PM

Sterling looks set to trade a 1.3570-1.3835 range into the Bank of England rate decision on Nov 4, and is likely to move lower unless they deliver a hawkish rate rise given elevated expectations and a negative backdrop.

Sterling's rise in October was broadly fuelled by the UK emerging from lockdown, spurring economic growth expectations and hawkish comments from Bank of England Governor Andrew Bailey nL1N2RD07B.

Yet the BoE decision is no longer a foregone conclusion, after recent mixed data.
Strong PMIs nZRN0030U9, but soft retail sales nL8N2RI1F6 and consumer confidence nL8N2RH2HAcloud the outlook.

Indeed, BoE rate-setter Silvana Tenreyro indicated Monday she is in no rush to raise rates nL8N2RL4BPand Refinitiv's BOEWATCH priced a 25-basis-point rate rise to 0.35% below 70% at Wednesday's close.

Britain's relationship with the European Union remains strained with little progress on the Northern Ireland protocol nL8N2RL55Y, and an escalation in the French fishing dispute nL8N2RN5NT, leaving alive the risk of a trade war.

Technically, GBP/USD momentum studies, 5, 10 and 21 day moving averages conflict, which suggests range trading rather than a trending move.
Sterling stalled around 1.3831, 50% of the 2021 fall in the last week, providing the range top.

Support starts at 1.3672-77, 38.2% of the September-October bounce and the 21-DMA, with a potential base around 1.3570, 61.8% of the same rise and a daily range base in early October.

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Source:
Refinitiv IFR Research/Market Commentary

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