GBP / USD consolidates at 1.3800 retracement from 1.3835 high

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  • The pound rises to hit a month-long high at 1.3845.
  • Speculation of the Bank of England rate hike continues to drive the recovery of the British pound.
  • GBP / USD: The monetary tightening might not be enough to lift the pound – MUFG.

The pound sterling It has appreciated beyond 0.5% on Tuesday, helped by a moderate USD reversal, to hit a month-long high at 1.3835 before consolidating around the 1.3800 level.

The pound is based on the BoE’s bullish expectations, the weakness of the US dollar

On the broader view, the pair has been making a solid recovery in October, appreciating almost 3% after rebounding from year-to-date lows near 1.3400. The pound has regained most of the ground lost in the second half of September when it was hit by concerns about fuel and labor shortages caused by Brexit restrictions.

Furthermore, rising expectations that the Bank of England will lead the world’s major central banks in raising interest rates are also increasing demand for the British pound.

With inflation accelerating to levels almost twice the Bank’s objective for price stability, Bank of England officials have begun to openly suggest the possibility of accelerating the monetary policy normalization plan. Bank of England Governor Andrew Bailey has backed this idea, suggesting this weekend that the Bank of England “will have to act” as rising energy prices threaten to overwhelm consumer prices.

At the other extreme, the US dollar fell on Tuesday. The US dollar index is down 0.2% on the day, after bottoming out at 93.45, its lowest level in the last three weeks, weighed down by a somewhat brighter market environment and a pause in the rally in US bonds. American Treasury.

GBP / USD: BoE’s aggressive rate hike cycle is not enough to lift the pound – MUFG

From a broader perspective, MUFG’s currency analysis team warns of further weakness in the British pound when monetary tightening is confirmed – the faster pace of tightening poses a bullish risk to our short-term outlook for the pound. . However, we continue to hold our view that sterling is more likely to weaken heading into the end of the year, given the more challenging context of slower global growth, higher inflation and tighter liquidity conditions, which should be less. favorable for risk assets and high beta currencies like the pound. “

Technical levels

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