GBP/USD consolidates above 1.3600 after rejection at 1.3660

The British pound has found support at 1.3610 after having hit resistance at one-week highs of 1.3660 earlier today. The pair consolidates above 1.3600 after a significant recovery from year-to-date lows near 1.3400 last week.

Pound appreciates on BoE hike expectations

The sterling appreciated across the board this week, as market expectations of a BoE hike next year have offset investors’ concerns about the fuel shortages and supply disruptions that pushed the GBP top mid-term lows last week.

Market sources are anticipating the possibility of the Bank of England leading the rest of the world’s major central banks to start raising interest rates in order to tackle inflation pressures. In that case, the market is pricing the first interest rate hike next February.

Furthermore, the widely awaited US Non-Farm Payrolls report has disappointed, showing a 194,000 increase in employment, well below market expectations of 500,000 new jobs. The dollar retreated immediately after the release, to pare losses shortly afterward, as the market assumed that these figures would not change Fed’s plans to start tapering bond purchases over the next months.

GBP/USD seen appreciating to 1.4100 in 2022 – Westpac

According to the FX Analysis Team at Westpac a more hawkish stance by the BoE is likely to support a long-term upside cycle, sending the pair towards 1.4100: “Its fuel shortage notwithstanding, the UK is expected to experience a robust recovery in GDP back to near the potential GDP level that would have been seen had the pandemic not occurred as well as sustained inflation at or above target over the entire forecast period. As a result, the BoE is expected to tighten, in line or just ahead of the FOMC (…) We look for GBP/USD to rise to 1.41 in the second half of 2022, and to only edge back to 1.39 at end-2023.” 

Technical levels to watch