GBP / USD struggles at 1.3400 for Fed’s re-election of Jerome Powell

• GBP / USD falls close to 0.40% as US President Biden nominates Fed Chairman Powell for a second term.
• Members of the Bank of England continue to express concerns about inflation, although the market remains cautious as the central bank was disappointed in its last meeting.
• US Treasuries and the US dollar advance strongly during the day as investors say Powell’s re-election is good for the US economy.

After closing lower on Friday, the GBP extended its slide against the dollar, down 0.36%, trading at 1.3394 during the American session at the time of writing. In the evening session, the pound traded hovering within the 1.3420-50 range, despite some members of the Bank of England speaking to the press over the weekend. Additionally, the White House issued a statement nominating Fed Chairman Jerome Powell for a second term, driving the pair down 50 pips, below 1.3400.

Bank of England policy makers continue to express concern about high prices

After disappointing a rate hike at their previous meeting, market participants are beginning to be more cautious regarding comments from Bank of England Governor Andrew Bailey. Over the weekend, Governor Bailey said inflation could be “higher for longer,” although there is also the possibility that it may not be as permanent as feared.

Bailey further added that “there are risks both ways. Obviously our concern would be that if it has second-round effects, it could rise longer. ”Over the past week, Governor Bailey has expressed concern about the inflation outlook.

However, the Bank of England failed to raise rates, as money market futures had predicted, following comments from Bailey and the chief economist’s new pill, which raised concerns about inflation that investors interpreted as a rate hike. .

Brexit jitters are keeping sterling bulls at bay, as talks between the eurozone and the UK regarding Northern Ireland and fishing rights slowed, keeping investors uneasy, passing from risk sensitive currencies to safe haven currencies.

Meanwhile, the US dollar index extends its gains, up 0.48% to 96.45, supported by the Fed’s Jerome Powell nomination. Also, the US Treasuries extend their gains during the day, with the 10-year Treasury yield advancing seven basis points, standing at 1.60%, as investors see the re-election as a continuation of the monetary policy path outlined by the Fed in recent meetings.

Therefore, the divergence in central bank policy appears to favor the British pound in the short term. However, if the Bank of England did not raise overnight rates at the December meeting, its credibility would be called into question, as members express opinions on inflation, although they vote differently. Regarding the US, the Fed could probably use its monetary policy meeting in December to increase the pace of bond cuts or leave it intact, as some authorities have expressed their opinion that inflation will reach 6% , three times the central bank’s target, leaning towards a faster QE reduction pace, which could leave room for the central bank to act.

Technical levels