British Pound Bounces at Key Support, Fed Speakers Likely To Dominate Trade

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Pound Sterling News and Analysis:

  • Repriced Fed bets have taken GBP/USD down to one-month lows
  • An important technical retracement point has stopped the bears so far
  • Can it continue to do so?

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The British Pound staged a modest comeback against the United States Dollar on Tuesday but it came after two bruising days for Sterling and the Greenback remains in control of this pair as all others.

The almost complete pricing out of a March interest rate cut by the Federal Reserve after last week’s storming labor market report is behind the Dollar’s strength. The Pound’s side isn’t helped by the fact that the Bank of England is unusually split on what happens next in London. Last week rates were left on hold, but two Monetary Policy Committee members wanted them to rise, five wanted to leave them alone and one wanted a cut. That was the first three-way voting split since 2016.

The rest of this week is very light on probably market-moving data which will leave GBP/USD at the mercy of whatever various Fed speakers have to say. There are four on the near-term slate. Cleveland Fed President Loretta Mester and Boston’s Sally Collins are on tap Tuesday, with Governors Adriana Kugler and Michelle Bowman going on Wednesday, when Collins also speaks again.

The extent to which this crowd reinforces the markets’ current take that a rate cut is likely in May will probably be crucial. If that prospect solidifies the Dollar could retrace some of its more extreme recent gains as markets see lower rates merely postponed rather than pushed much further out.

There’s no heavyweight UK economic data due until February 13, when official employment numbers for December will be released.

GBP/USD Technical Analysis

GBP/USD Daily Chart Compiled Using TradingView

Sterling has been pushed pretty unceremoniously out of the broad, elevated trading range which had previously dominated the action since December.

However, that range retains some relevance because its lower bound was the first, Fibonacci retracement of the rise to December 28’s peak from the lows of October 5 and GBP/USD has clearly bounced at the second retracement. That comes in at 1.25180, Monday’s precise intraday low. This region was also where the market bounced in mid-December and it still looks likely to offer substantial support.

Monday also saw the Pound slip below its 200-day moving average when it abandoned 1.25643. This might be an indication that weakness has gone too far, and bulls will be keen to retake this level. The 1.2600 psychological resistance point is also likely to be key, along with December 7’s closing high of 1.25927 offering likely resistance just below it.

However, the bulls’ near-term order of business will probably be to keep Sterling above that important retracement level on a daily and weekly closing basis.

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–By David Cottle for DailyFX





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