GBP/USD: Eyes Bank of England to combat post-Fed US dollar rally
|- GBP/USD snaps three-day winning streak despite latest bounce off 1.2901.
- US dollar marked across the board rise as Fed signals immediate pause to further rate cuts.
- UK government agrees to give parliament a vote on any breach of WIB, compromise on fisheries can move the talks.
- BOE to keep current monetary policy unchanged, rate statement will be the key due to recent recovery in British data.
GBP/USD stays heavy near 1.2915, drops 0.40% intraday, while heading into the London open on Thursday. In doing so, the Cable declines for the first time in last four days as the USD bulls cheer the Federal Reserve’s (Fed) cautious optimism. It should also be noted that the doubts over the Brexit-positive headlines are also playing their roles to weigh on the quote ahead of the key Bank of England (BOE) monetary policy meeting.
Read: Bank of England Preview: Fast recovery or trio of troubles? Bank's tone to set pound's direction
The US dollar index (DXY) registers the biggest intraday gains in over a week, currently up 0.44% to 93.51, as the Federal Open Market Committee’s (FOMC) upward revision to economic forecasts please the greenback buyers. Also helping the US currency could be the policymakers’ dot-pot suggesting no major rate changes soon.
On the contrary, British Foreign Secretary Dominic Raab’s comments that the EU (European Union) threatening Irish peace plan over Brexit may question the recently positive divorce talks, as suggested by Brandon Lewis, UK's Secretary of State for Northern Ireland. It should also be noted that Reuters came out with the news suggesting British Prime Minister Boris Johnson’s readiness to give the lawmakers a final say on any breach of the Withdrawal Agreement Bill (WAB) caused by his Internal Market Bill (IMB).
Elsewhere, “The United Kingdom recorded nearly 4,000 new daily cases of COVID-19, government data showed on Wednesday, with the total number of daily cases at its highest level since May 8,” per Reuters. This also joins PM Johnson’s concern about the testing capacity and a lack of a virus vaccine to weigh on the risk-tone sentiment.
Looking forward, the BOE will have a tough task managing the soft inflation and recently picking up top-tier economics. Also challenging the “Old lady” is the future of the furlough scheme and any more disturbance by the Brexit talks. Against this backdrop, Governor Andrew Bailey and Company may steal the show if managed to strike a fine line like the Fed.
Technical analysis
The pair’s failure to provide a daily closing beyond 50-day SMA, at 1.3109 now, can direct the bears towards the monthly low of 1.2762 unless bouncing off 1.2850/55 intermediate stop.
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