GBP/USD Forecast: Decreasing BoE rate hike bets limit pound's upside

GBP/USD has started to edge higher amid broad dollar weakness.
Market pricing of a 15 bps BoE rate hike in December is losing traction.
Investors eye coronavirus headlines as safe-haven flows dominate financial markets.

Eren Sengezer FXStreet

After dipping below 1.3300 earlier in the day, GBP/USD has managed to gain traction in the early European session and started to push higher toward mid-1.3300s on heavy selling pressure surrounding the dollar. However, the British pound could have a difficult time preserving its strength with investors reassessing the impact of the new coronavirus variant on the Bank of England's (BoE) policy outlook.

The UK interest rate futures are currently pricing a 55% chance of a 15 basis points BoE rate hike in December, compared to a 75% probability on Thursday.

British Health Secretary Sajid Javid announced on Friday that flights from six African countries will be banned from 12:00 GMT on Friday. The World Health Organization (WHO) is expected to hold a press conference later in the day and markets fear over the possibility of current vaccines being ineffective against the heavily-mutated new variant.

On the other hand, the benchmark 10-year US Treasury bond yield is falling nearly 7% and weighing heavily on the dollar. The CME Group's FedWatch Tool shows that investors have already started to doubt a Fed rate hike by June 2022. There won't be any high tier data releases in the remainder of the day and bond markets will close early due to the Thanksgiving holiday. Ahead of the weekend, the pair could extend its technical correction but the fundamental outlook doesn't yet point to a steady recovery.

GBP/USD Technical Analysis

GBP/USD is currently trading near the descending trend line coming from November 18 at 1.3340. The 20-period SMA on the four-hour chart is reinforcing that resistance and additional gains toward 1.3380 (static level) and 1.3400 (psychological level, 50-period SMA) could be witnessed in case buyers manage to flip the 20-period SMA into support.

In the meantime, buyers are encouraged by the Relative Strength Index (RSI) rising toward 50.

On the downside, 1.3300 (psychological level) aligns as initial support ahead of 1.3280 (daily low).

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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