GBP/USD firm on BoE sentiment, USD weakness, pressing against critical resistance

GBP/USD bulls are moving in for an attack on critical resistance.
The US dollar is weak and the pound is benefitting from BoE sentiment.

Ross J Burland FXStreet

At 1.3448, GBP/USD is firming in mid-day New York trade and moves in towards the highs of Monday near 1.3455. The US dollar has come under further pressure in recent trade and the US dollar index DXY was down 0.61% 96.624, putting it on track for its largest daily fall since January 12.

Investors have consolidated gains in the US dollar ahead of the closely-watched monthly employment report later this week and the pound is bid as traders expect the Bank of England to be raising interest rates for the second time in as many months.

The BoE meets on Thursday

Most economists polled by Reuters expect the BoE to raise rates to 0.5% on Feb. 3 from 0.25%. Reaching the 0.5% threshold would also see the bank stop reinvesting maturing gilts and start to reduce its 875 billion-pound government bond holdings.

However, there are some analysts that are calling for a far more aggressive move from the central bank. Goldman Sachs is calling for interest rates at 1% in May and 1.25% in November to show "the MPC (Monetary Policy Committee) is serious about the inflation target, and will act to ensure the UK does not face the risk of a wage-price spiral."

Analysts at Rabobank said that ''the money market has been positioned for a fair amount of tightening this year. That said, fears of a spike in the cost of living in the UK question whether the BoE be able to match these expectations.''

In the lead into this week's meeting, we heard from several BoE policymakers who have commented on inflation risks in recent weeks. The governor of The Old Lady, Andrew Bailey, was suggesting the risk of second-round inflation effects was a source of concern and that the bank would do "everything we can do".

GBP/USD technical analysis

As per the start of the week's analysis, GBP/USD Price Analysis: Bears lurking at critical daily resistance near 1.3440, the price is moving in on the critical resistance.

GBP/USD, prior analysis

GBP/USD live market

The price has penetrated into resistance and there are prospects of a continuation into the 1.3520's on a break of the 1.3470.

Author

Ross J Burland

FXStreet

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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