- GBP/USD has stabilized around 1.3075 and is trading unchanged ahead of the release of the Fed Meeting Minutes.
- The pair dipped below 1.3100 on Tuesday following the Fed’s hawkish line comments, highlighting the growing divergence in tone with the BoE.
- Some analysts are calling for a break below 1.3000 as this divergence between banks grows.
The GBP/USD has stabilized around 1.3075, where it trades sideways on Wednesday amid a dovish tone in the broader FX market, with market participants opting to wait and see ahead of the release of the Fed Meeting Minutes. Global stocks have picked up where they left off on Tuesday and continue to push lower in the wake of Fed Vice Chair Lael Brainard’s recent hawkish speech, and this is likely to weigh on the risk sensitive cable.
Market commentators have pointed out that the most recent aggressive comments from Brainard, usually one of the Fed’s more dovish policymakers, highlighted the growing divergence in tone between the Fed and the BoE. Earlier in the week, BoE chief Jon Cunliffe (who was the only voter against a rate hike at the bank’s last meeting) downplayed inflation risks and warned of economic weakness.
The upcoming Fed Meeting Minutes may well put this divergence in tone back into the spotlight, with some GBP/USD bears calling for a break below last week’s lows of 1.3050 and a push higher. annual lows at 1.3000. The pair actually already dipped below last week’s low earlier this session to hit 1.3045, but the move was short-lived and traders were unwilling to over-commit before minutes.
Recent technical price action will encourage bears; GBP/USD in recent weeks has been unable to sustain a move above its 21-day moving average (now at 1.3125), which sends a signal that the pair is not ready to break higher. Some FX strategists have called UK money market expectations of an additional 140bn basis points in BoE tightening this year as too aggressive and if this starts to retrace, the resulting drop in UK yields (in a time when US yields are rising), could be enough to send GBP/USD above 1.20
Technical levels
Source: Fx Street
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