Cable rebound (GBP / USD) collapses as the expected spread from the BOE and Fed interest rate takeoff narrows!

Unsurprisingly, the US dollar is the strongest major currency of the day in forex following this morning’s CPI report.

After “Central Bank Week” last week, this week is undoubtedly “Inflation Week” for currency traders. As my colleagues Matt Simpson have noted (“ Chinese A50 falls down as producer prices hit a 26-year high ”) and Joe Perry (“ American CPI: highest level in almost 30 years! Gold near 5-month highs ”), price pressures are accelerating to decades-long highs in the United States and China, the world’s two largest economies.

The US CPI report is particularly interesting, as traders are now questioning whether sustained inflation readings near that level (or even continued acceleration in price pressures) could prompt the Federal Reserve to step up its program of inflation. reduction in the coming months or even to increase interest rates in the first half of next year, before the end of the reduction. For a central bank that many analysts (including myself) assumed to be on cruise control for the next eight months as early as the start of this week, that would indeed be a major development.

Unsurprisingly, the US is the strongest major currency of the day in forex following this morning’s CPI report, rising between 10 and 100 pips against each of its major rivals as of going to press. As we highlight the changes in expected monetary policy, perhaps no major currency pair has been impacted more than the GBP / USD pair.

Around the same time last week, traders expected the Bank of England to hike interest rates imminently and the Fed to be on cruise control until next July at the earliest; In the wake of last week’s relatively conciliatory BOE meeting and this morning’s scorching US inflation report, this gap in expectations of rising interest rates is narrowing. While it still seems likely that the BOE will get a “takeoff” ahead of the Fed, GBP / USD remains under pressure on forex as traders reassess the length of the gap between the two “special relationship” countries.

Looking at the chart, the pair GBP / USD continues to hit lower highs in recent months, and October’s countertrend rebound eased the oversold condition. From there, a confirmed breakout to new year-to-date lows below 1.3412 would open the door for a further decline, with no noticeable support level up to the 38 Fibonacci retracement level. , 2% of the 2020-2021 rally below 1.3200. Until the pair is able to maintain rallies above the 100-day EMA moving average (currently around 1.3730), the path of least resistance will remain on the downside.

Daily GBP / USD Chart

forex gbp / usd 10112021
Source: TradingView, StoneX

By Matt Weller, CFA, CMT, Forex.com » Official site

Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or a solicitation to buy or sell forex foreign exchange contracts or CFDs. Although the information contained in this document has been taken from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may result from the fact that someone relies on such information.

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