GBP/USD moves away from multi-month low, retakes 1.2900 ahead of BoE/Fed

GBP/USD scales higher amid some repositioning ahead of key central bank event risks.
The BoE and the Fed are due to announce their respective policy decision later today.
The fundamental backdrop warrants caution before placing bullish bets around the pair.

Haresh Menghani FXStreet

The GBP/USD pair attracts some buyers during the Asian session on Thursday and moves away from its lowest level since mid-August, around the 1.2835-1.2830 region touched the previous day. Spot prices now look to build on the momentum beyond the 1.2900 mark as the market attention shifts to key central bank event risks.

The Bank of England (BoE) will announce its policy decision later today and is widely expected to lower interest rates for the second time this year on the back of slowing inflation. That said, expectations that UK Finance Minister Rachel Reeves' first budget would boost inflation, and cause the BoE to cut interest rates more slowly, offering some support to the British Pound (GBP). This, along with a modest US Dollar (USD) downtick, turn out to be key factors pushing the GBP/USD pair higher.

However, any meaningful USD corrective slide, from a four-month top touched on Wednesday, seems elusive amid optimism about higher growth and inflation under Donald Trump's second presidency, which could reduce the pace of interest rate cuts. Hence, the outcome of a two-day Federal Open Market Committee (FOMC) policy meeting, along with Federal Reserve (Fed) Chair Jerome Powell's comments at the post-meeting press conference will play a key role in influencing the USD.

In the meantime, the return of the so-called Trump trade keeps the US Treasury bond yields elevated near a multi-month peak. This, in turn, should act as a tailwind for the Greenback and cap the upside for the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom. Meanwhile, bearish traders need to wait for a breakdown below the 200-day Simple Moving Average (SMA) before placing fresh bets.

Economic Indicator

BoE Interest Rate Decision

The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.

EUR/USD deflates to fresh lows, targets 1.1600

The selling pressure on EUR/USD now gathers extra pace, prompting the pair to hit fresh multi-week lows in the 1.1625-1.1620 band on Friday. The continuation of the downward bias comes in response to further gains in the US Dollar as market participants continue to assess the mixed release of US Nonfarm Payrolls in December.

GBP/USD breaks below 1.3400, challenges the 200-day SMA

GBP/USD remains under heavy fire and retreats for the fourth consecutive day on Friday. Indeed, Cable suffers the strong performance of the Greenback, intensified post-mixed NFP, and trades at shouting distance from its critical 200-day SMA near 1.3380.

Gold flirts with yearly tops around $4,500

Gold keeps its positive bias on Friday, adding to Thursday’s advance and challenging yearly highs in the $4,500 region per troy ounce. The risk-off sentiment favours the yellow metal despite the firmer tone in the Greenback and rising US Treasury yields.