- GBP/USD will end the week with gains close to 3%, despite the UK bond crisis.
- The US PCE figures increased the likelihood of a Fed hike of 75 basis points as Fed officials reinforced their hawkish rhetoric.
- GBP/USD still has a bearish bias and once it breaks above 1.1050, it could drop towards 1.0800.
The GBP/USD is recovering from earlier losses as the American session progresses, although market sentiment turned sour as Fed officials reinforced their “aggressive” message of keeping interest rates higher for longer. Thus, the GBP/USD is trading at 1.1168, gaining 0.46%, after hitting a daily low of 1.1024.
US stocks are trading lower. On Friday, a string of Fed officials, led by Fed Vice Chair Lael Brainard, crossed the news wires following the release of critical US economic data.
The US Commerce Department revealed that the Fed’s preferred inflation measure, PCE, rose 0.3% mom in August, above estimates of 0.1%, while the annual reading slowed from 6.3 % to 6.2%. For its part, the so-called core PCE, which excludes volatile items such as food and energy, beat estimates by 0.6% month-on-month, while year-on-year rose 4.9%, also above forecasts.
During the day, US central bank policy makers reiterated the need to raise interest rates and stressed that they will remain higher as long as inflation remains above their 2% target. Fed Vice Chair Lael Brainard echoed this, reiterating that “it would be premature to turn around” as it is too early to declare victory over inflation. Later, her colleague Mary Daly at the San Francisco Fed continued the same “hawkish” rhetoric, while adding that the Fed is “determined” to tackle inflation.
For his part, the president of the Richmond Fed, Thomas Barkin, was “comfortable” with the pace of rates and added that it is not known how much the Fed will have to do to reduce demand and reach its inflation target.
On the Ukrainian side, the pound sterling has recovered after hitting the 1.0300 level last Friday at a record low, courtesy of new Prime Minister Liz Truss’s tax cut plans to stimulate the economy. This triggered one of the most volatile sessions, causing the GBP/USD pair to fall from daily highs of 1.0900 to 37-year lows of 1.0356.
According to a Reuters poll, “19 of 36 economists surveyed said the Bank would add 75 basis points in November, while 13 said it would lean towards a 100 basis point hike. Only three said it would add 50 basis points, as it did in their last two meetings, while one opted for a mega hike of 125 basis points.
GBP/USD Technical Analysis
GBP/USD is hovering around the 61.8% Fibonacci retracement but some 40 pips away at 1.1170 after breaking through the 1.1200 figure in the overnight session. However, sellers stepped in around the aforementioned daily high of 1.1203 and sent sterling towards its daily low, before regaining some ground. Note that GBP/USD remains biased to the downside, and unless the exchange rate breaks above the 1.1740 area to move to a neutral stance, risks are skewed to the downside.
Therefore, the first GBP/USD support would be the 50% Fibonacci retracement at 1.1047, followed by the 38.2% Fibonacci retracement at 1.0884, and then 1.0800.
GBP/USD key technical levels
|last price today||1.1171|
|Today I change daily||0.0052|
|Today’s daily variation in %||0.47|
|Daily opening today||1.1119|
|Previous daily high||1.1122|
|Previous Daily Low||1.0762|
|Previous Weekly High||1.1461|
|Previous Weekly Low||1,084|
|Previous Monthly High||1.2294|
|Previous Monthly Low||1.1599|
|Daily Fibonacci of 38.2%.||1.0984|
|Daily Fibonacci of 61.8%||1.09|
|Daily Pivot Point S1||1,088|
|Daily Pivot Point S2||1.0642|
|Daily Pivot Point S3||1.0521|
|Daily Pivot Point R1||1.1239|
|Daily Pivot Point R2||1,136|
|Daily Pivot Point R3||1.1598|
Source: Fx Street