- GBP / USD is within a range below 1.3450 despite a Bailey from the BoE that sounded a bit more subdued over the weekend.
- The pair awaits the FOMC Minutes, the Fed chairman’s nomination, UK flash PMIs and more statements from the BoE this week.
The GBP/USD it is in range just below 1.3450 at the start of what is likely to be a pretty busy week for the pair. On the USD side of the equation, the FOMC Minutes will be released on Wednesday and it is likely that the nominations for Fed chairman will be announced on Tuesday, which could generate turmoil in the dollar. Meanwhile, preliminary UK November PMIs were released on Tuesday and speeches by Bank of England officials throughout the week. Liquidity conditions in the currency markets are likely to be tight as of Thursday, given the closing of US markets on Thursday for Thanksgiving and then the expectation that many will remain on holiday on Friday.
For now, GBP / USD is content to swing between the 1.3420-1.3450 parameters. Support is at 1.3400 in the form of last week’s lows, while there is resistance around 1.3500 in the form of last week’s highs. The pound has ignored comments from Bank of England Governor Andrew Bailey over the weekend, even though the governor was not as aggressive on inflation as he has shown in recent weeks. He noted that the risks to the bank’s inflation forecasts are two-sided, which some analysts took as a sign that the bar for a rate hike in December is slightly higher than previously thought.
The latest comment, plus the continued worsening outlook for the European economy, shows that sterling short-term interest rate markets (STIRs) lower expectations of a 25 basis point rate hike in December. The December 2021 British Pound LIBOR futures are currently trading near 99.80, with most of the last two weeks having spent around 99.75. That implies that the markets are valuing 5 basis points less in the monetary tightening in December (10 basis points instead of 15 basis points). That can be loosely interpreted as STIR markets suggesting a 2/3 chance of a rate hike in December, down from last week’s full price. Another sustained rate in December from the Bank of England presents a clear downside risk to the British pound.
Technical levels
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