GBP/USD hovers around 1.3500 on Brexit, BOE rate hike concerns

• GBP/USD steps back after refreshing weekly top on BOE rate hike chatters.
• UK inflation jumped to over a decade high following upbeat jobs report.
• EU warned to not start trade war if UK PM Johnson suspends part of Brexit deal.
• Fedspeak, US data to entertain pair traders amid light British calendar ahead of Friday’s key Brexit talks.

GBP/USD eases from its weekly top to 1.3485, stays within an immediate 20-pip range during early Thursday. In doing so, the cable pair consolidates the biggest daily gain in over a week amid cautious sentiment on Brexit concerns and a sluggish Asian session.

The quote’s run-up on Wednesday could be linked to the strong prints of the UK Consumer Price Index (CPI) data and chatters that the London and Brussels may agree on some parts of the Northern Ireland (NI) border protocol during Friday’s key talks. That said, the UK CPI not only doubled from the Bank of England’s (BOE) inflation target of 2.0% but also jumped to a more than 10-year high, flashing a 4.2% YoY print for October. Earlier in the week Britain’s employment data flashed positive numbers and fuelled the BOE’s rate hike concerns.

It’s worth noting that a pullback in the US Dollar Index (DXY) from the 16-month high and softer Treasury yields could also be linked to the previous day’s heavy run-up by the GBP/USD pair. US 10-year Treasury yields stepped back from the highest levels since October 26 to post the heaviest daily fall in a week on Wednesday, down 1.3 basis points (bps) to 1.59% at the latest. Further, DXY tracked bond yields and marks a first negative daily closing in three after refreshing the 16-month top, indecisive around 95.80 at the latest. It’s worth noting that S&P 500 Futures print mild gains while stocks in Asia-Pacific trade mixed at press time.

While tracking the US Treasury yields and DXY moves, a pullback in the US inflation expectations and mixed concerns over the Fed rate hike could be found as key catalysts. Also, the easy figures of US Housing Starts can be related to the GBP/USD pair’s earlier run-up.

However, the latest headlines from Bloomberg suggest a rift between the UK and European Union (EU) and weigh on the GBP/USD prices. “The UK warned the European Union not to start a trade war if Boris Johnson’s government suspends part of the Brexit settlement over Northern Ireland, saying a strong retaliation would exacerbate problems,” said Bloomberg. On a different page, the UK’s covid concerns and chatters that supply chain issues may stop the BOE from rate hike also probe the pair bulls.

That said, a lack of major data/events will keep the Fedspeak and Treasury moves in the driver’s seat whereas the US Weekly Jobless Claims and Brexit news could entertain the GBP/USD traders going forward.

Technical analysis

GBP/USD stays directed towards the 20-DMA level of 1.3580 until it stays beyond the previous resistance line from October 28, around 1.3425 by the press time.