GBP/USD fades recovery near 1.1100, US inflation, BOE’s bond-buying eyed

GBP/USD struggles to extend the previous day’s rebound from a two-week low, retreating to 1.1095 of late, as markets turn dicey ahead of Thursday’s US inflation data. Also weighing on the Cable pair could be recently hawkish comments from the Federal Reserve Governor Michelle Bowman, as well as fears surrounding the British economy and the Bank of England’s (BOE) bond-buying program.

Federal Reserve Governor Michelle Bowman said on Wednesday that if high inflation does not start to wane she will continue to support aggressive rate rises aimed at taming price pressures, reported Reuters.

On the other hand, Bank of England policymaker Catherine Mann stated that tackling inflation will hurt the UK more than others. On the same line could be the UK PM Liz Truss’ determination to keep the widely criticized mini budget despite knowing that it will post a £60 billion funding hole. "I am still inclined to believe that a significant monetary policy response will be required in November," Bank of England (BOE) Chief Economist Huw Pill said on Wednesday, as reported by Reuters.

On Wednesday, chatters that the Bank of England (BoE) will extend its gilt purchases triggered the GBP’s upside before the “Old Lady”, as the BOE is informally known, mentioned that gilt purchases are a temporary program and that they will be unwound in a smooth and orderly fashion. The news reversed Sterling’s initial gains and recollected downbeat UK statistics to challenge the GBP/USD bulls before the US dollar weakness favored the upside momentum.

That said, UK Gross Domestic Product (GDP) dropped to -0.3% MoM in August versus 0.0% expected and 0.2% prior whereas the Industrial Production (IP) and Manufacturing Production (MP) also slumped into the negative territory during the stated month.

Additionally, a survey conducted by YouGov and consultancy the Centre for Economics and Business Research stated that the UK Consumer Confidence gauge fell to 97.7 in September from 98.8. The detail also stated that British consumer confidence fell due to a steep deterioration in homeowners’ attitudes toward their house values.

It should be noted that the latest Federal Open Market Committee (FOMC) Meeting Minutes failed to impress the US dollar bulls despite showing the policymakers’ hawkish bias amid concerns over more persistently high inflation. The Fed Minutes also mentioned that the participants agreed the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee’s legislative mandate to promote maximum employment and price stability.

Amid these plays, yields remained weak for the second consecutive day and the equities ended the day with mild losses while the US dollar snapped a five-day uptrend.

Looking forward, GBP/USD pair can witness further consolidation of the latest gains but the decline is likely to be smoother ahead of the US inflation data wherein the headline CPI is expected to ease to 8.1% YoY versus 8.3% prior but the more important CPI ex Food & Energy is likely to increase to 6.5% YoY from 6.3% prior and can trigger more downside considering the recession woes.

Technical analysis

GBP/USD’s rebound failed to cross the 21-DMA immediate hurdle, around 1.1155 by the press time, which in turn directs the cable pair towards the 1.0930-15 horizontal support area established from September 26.