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British Pound Wilts As Markets Await Both Fed and BoE

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British Pound Price and Analysis

  • GBP/USD has slipped below the $1.27 mark
  • The Dollar has gained broad support from suspicions that the Fed
  • The Bank of England isn’t expected to alter policy, but its voting split will be fascinating

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The British Pound was sharply lower against the United States Dollar on Tuesday. The next forty-eight hours will bring interest rate decisions from both currencies’ central banks and the markets expect the net result will be some further strength in the greenback.

The Federal Reserve will go first, on Wednesday. The Bank of England follows up a day later. Neither outfit is expected to alter its monetary settings but the big question for both as far as markets are concerned will be ‘when are rate cuts coming?’

The US economy has proven resilient despite higher rates, with inflation stickier than expected. Given that the Fed may leave markets with the impression that, while borrowing costs will probably still fall this year, they will do so later and to a lesser extent than investors thought back in January.

Don’t forget that this very month was tipped as the starting gate for rate cuts as 2024 got going. Now June looks like the earliest possible date, and the markets are far from sure of even that.

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This pushback of expectations has lent the Dollar broad support. Of course, investors also suspect that the next move by the Bank of England will be a rate cut, but they don’t think that’s coming soon either. Indeed, the last policy meet produced a rare, three-way split with votes for rate hikes, rate cuts and from the majority, a vote to hold.

The ‘hold’ camp is tipped to win again this month. The BoE and the markets will get a look at official UK inflation numbers on Wednesday. They’re forecast to show a continued deceleration and, if they do, their effect on monetary-policy expectations should be minimal. Watch out for any unexpected strength though. That could give the Pound a bit of support.

GBP/USD Technical Analysis

GBP/USD Chart Compiled Using TradingView

The Pound is clearly under a bit of pressure on the daily chart, as the technical picture matches the fundamental one.

However, the broad trading range in place since late November remains very much in place. It’s perhaps more surprising that the recent uptrend from the lows of mid-February is also unbroken so far. Indeed, the market appears to have bounced at that point and it may be instructive to see if it can end this session above it. For now, it offers support very close to the market at 1.26698.

Bulls will want to get the rate back above February 1’s intraday peak of 1.27540 if they’re going to have another try at the range top.

GBP/USD’s Relative Strength Index suggests that the pair’s consistent falls since the first week of March may now leave it approaching oversold levels. This may argue for a pause in Sterling’s retreat, even if it proves temporary.

—By David Cottle for DailyFX

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