Is GBP/USD trimming losses on the back of EUR/GBP sell-off?

Omkar Godbole FXStreet Contributor

GBP/USD has retraced 50 percent from the daily low of 1.3070 reportedly due to expectations that the Bank of England (BOE) is set to raise rates by 25 basis points next week.

As of writing, the currency pair is trading around 1.3115; still down about 0.35 percent on the day.

Is the recovery from the session lows solely due to BOE rate hike expectations? It appears the Catalan-led sell-off in the EUR/GBP could have played a role in helping GBP/USD trim losses.

Cross driven recovery

EUR/GBP fell from the high of 0.89 to 0.8826 after Catalonia declared independence and in response Spanish PM Rajoy vowed to restore legality in Catalonia. The escalation of Catalan crisis forced investors to ditch EUR in favor of the GBP, which offers relative political stability.

The increase in demand for Sterling may have helped Cable recover part of its losses. The next promises to be an exciting one for Sterling traders as Bank of England (BOE) would take centerstage.

GBP/USD Technical Levels

A break above 1.3162 (daily high) would open doors for a possible cut through 1.3187 (50-DMA) and a rally to 1.3279 (previous day's high). On the other hand, a break below 1.3060 (100-DMA) could yield a sell-off to 1.3027 (Oct 6 low) and 1.30 (psychological level).

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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