- The British pound rallies thanks to an aggressive BoE as investors increase the odds of a rate hike in December.
- Positive market sentiment spurred by US corporate earnings and “stable” energy prices weaken the dollar.
- Rising US Treasury yields reinforce market expectations for a bond phasing announcement at the Fed’s November meeting.
The GBP/USD It is recovering from Monday’s losses, up 0.53%, trading at 1.3799 during the American session at the time of writing. Strong corporate earnings, stability around energy prices, and tightening of monetary policy by central banks keep investors positive.
This triggered a selloff of dollars, attested by the US dollar index that measures the performance of the dollar against six pairs, losing 0.30%, and settling at 93.71, well below 94.00, despite the increasing probabilities of a Federal Reserve bond reduction announcement. .
Meanwhile, the yield on 10-year US Treasuries rises three basis points to 1,614%, reinforcing market expectations that the Federal Reserve will tighten monetary conditions.
The divergence of the monetary policy of the Bank of England and the Fed favors the British pound
However, the Bank of England (BoE) and the Federal Reserve (Fed) diverge in their monetary policies. The BoE is already reducing its bond buying program, while the Fed could announce it at the November meeting. But starting in recent weeks, Bank of England lawmakers such as Michael Saunders and Governor Andrew Bailey have voiced their opinion on higher prices, indicating that the bank could raise rates before the end of the year, giving a advantage to the pound sterling over the dollar.
The US macroeconomic front presented September housing starts for September, which rose to 1.555 million below the 1.62 million expected. In addition, building permits increased to 1,589 million less than the 1.68 million predicted by analysts.
The drop in reading is due to supply chain constraints, a shortage of skilled employees, and high material costs that continue to challenge builders.
GBP / USD technical outlook
The GBP / USD pair continues to move within the ascending channel that comes from the end of September. Currently, the pair is testing the upper limit of this channel and the RSI indicator on the four-hour chart is holding near 70, suggesting that a technical correction could be seen before further gains.
The last time the RSI rose above 70 on October 15, the GBP / USD corrected towards the midline of the ascending channel. At the moment, this line is at 1.3760, forming the initial support before 1.3730 (20-period SMA, bottom line of the channel) and 1.3700 (psychological level, 200-period SMA).
On the upside, the first resistance could be seen at 1.3800 (static level, psychological level) before 1.3850 (static level).
Additional technical levels