GBP/USD bulls move in as the US dollar dips away from key resistance

GBP/USD is back to trading flat on the day as the bulls move in from the lows of 1.1355, taking on the 1.14 area again. The greenback is a touch softer on the US session in some two-way business while traders remain in anticipation of the Federal Reserve and Bank of England meetings this week.

The sentiment surrounding surging inflation and tighter monetary policy continues to run the show, favoring the US dollar more so as the UK economy fares poorly vs. the US economy. The greenback remains close to two-decade highs as per the US dollar index DXY which measures the currency against six counterparts. DXY was up at 110.18 the high on Monday, not far from 20-year high of 110.79 hit on September. 7.

Risk-off sentiment is also contributing to a higher US dollar in the face of the aggressive tightening path that global banks are on as they try to contain uncomfortably high inflation. A slew of central banks will meet this week and Fed funds futures have priced in a 79% chance of a 75-basis-point rate hike this week and a 21% probability of a 100-basis-point increase at the conclusion of the Fed committee's two-day policy meeting. Meanwhile, the BoE is expected to raise rates by either 50bps and 75bps. 

''We look for the BoE to deliver a 75bps hike, although the decision will likely be closely balanced between 50 and 75bps,'' analysts at TD Securities said.

''While headline inflation recently fell to match the MPC's latest forecast, red-hot wage growth and record low unemployment argue in favor of a 75bps increase. We also expect the MPC to approve the start of asset sales at a pace of £10bn per quarter.''