GBP/USD Sharply Lower Following Bailey’s Dovish Comments

3 окт.

In an interview with the Guardian, Bank of England (BoE) Governor Andrew Bailey echoed a marked shift in tone today and underlined that the BoE could become more aggressive regarding policy easing if inflationary pressures continued to subside. This follows Bailey calling for a ‘gradual approach’ in September after the central bank held the Bank Rate steady at 5.00% in an 8-1 vote amid sticky inflation. You will also recall that the BoE reduced the Bank Rate by 25 basis points (bps) in August.

Despite headline year-on-year CPI inflation (Consumer Price Index) holding steady at 2.2% (after recently hitting the BoE’s inflation target of 2.0%), the UK’s economy continues to face elevated price pressures in wages and services. The latter saw inflation rise to 5.6% in August from 5.2% in July (market consensus called for 5.5%).

Markets Pricing in 25bp Cut in November


The British pound (GBP) observed a strong unwind in positioning today, following Bailey’s comments, with Gilts also catching a bid.

Surprisingly, albeit triggering a modest dovish repricing, this did not spark much movement in money markets. 43 bps of easing are priced in until year-end (not quite two rate cuts), but – as of writing – November’s meeting is now fully priced in for a 25bp cut (96% probability).

GBP/USD Testing 2-Week Lows


Compared to the US dollar (USD), GBP is down more than 1.0%, challenging two-week lows and marking its largest one-day slide since March of this year.

Technically, long-term support on the monthly chart entered the fray at US$1.3111, and the overall trend is biased to the upside. As such, bulls making a stand from the noted support should not raise too many eyebrows. However, while the monthly support will garner attention, so will the daily chart as reflected by limited support until US$1.2994. Interestingly, this support level is positioned directly south of the higher low formed on 11 September at US$1.3002, and whipsawing below this base would likely trip stops and provide liquidity (sell orders) for longs at US$1.2994.

Therefore, despite monthly support in play, there’s a chance that the pairing could navigate deeper waters before serious buyers step in. Across the page on the H1 chart, you will note that buyers and sellers are squaring off at the US$1.31 figure.

US$1.31 is on the radar.

US$1.31 is key in the short term for this market. Defending the level adds weight to possibly reversing higher and reclaiming a portion of today’s lost ground, as the monthly chart suggests. On the other hand, dropping through bids at US$1.31 could spark further selling, in line with the scope to explore south on the daily timeframe.