GBP/USD breaks below 1.3100, heads towards key support amid buoyant dollar

  • GBP/USD trades with a downward bias as the Euro underperforms and the 21-day DMA continues to act as a ceiling.
  • A break down to test last week’s lows of 1.3050 is on the cards, with bears eyeing yearly lows of 1.3000 as well.
  • Following the Fed’s aggressive line comments over the weekend and possibly more this week, USD risks are tilted to the upside.

In a relatively quiet start to the week for currency markets, the GBP/USD It is trading in a downtrend and is currently threatening to break below the 1.3100 level. Sterling is likely to be hit by the underperformance of its English Channel peer, the euro, which is underperforming ahead of the resumption of Russia-Ukraine peace talks later in the session and in amid further talk of a possible EU embargo on Russian energy imports. The BoE policymakers’ comments on Monday did not stray into monetary policy territory and thus did not affect cable, which probed last Friday’s lows of 1.3080 earlier in the session and points to a break lower towards last week’s lows around 1.3050.

“Despite much focus on the largest cost of living rise since British records began (1950s), the market still prices the BoE bank rate at 2.20% at this year’s December meeting” , ING analysts noted. “BoE cycle pricing is likely to keep GBP relatively well supplied, although we believe risks of the cable breaking to the $1.25/$28 area are rising in the coming months,” they warn. Amid a light UK data program this week, the risks posed to the GBP by fears of a weakening UK economy are unlikely to be the main focus of the market.

Rather, the Fed’s policy outlook is likely to be a much bigger issue. Already over the weekend, there have been new aggressive comments. The Fed’s John Williams warned that balance sheet reduction could start as early as May, and the Fed’s Mary Daly said the case for a 50bp rate hike in May has grown. Various Fed policymakers will make public appearances and talk politics throughout the week and the minutes of the most recent Fed meeting will be released on Wednesday.

Risks appear skewed to the upside for the US dollar amid the risk of further Fed hawkish line vibes. likely to continue to act as a ceiling for the time being.

Technical levels

Source: Fx Street

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