The Pound Fights Back
2022 is really starting to heat up now and as another week draws to a close, its safe to say it’s been a very eventful session in the markets. We’ve seen some interesting moves across the board and plenty of noteworthy developments in the fundamental backdrop. In terms of moves in the FX space specifically, it seems the trade which has captured the most attention this week is the rally in GBPUSD. The pair rose by almost 2% over the week, confounding GBP bears at the start of the week. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If not? There’s always next week!
What Caused the Move?
Softening In Fed Commentary
The first part of the equation this week was the softening in language we saw among key Fed policymakers. Following hawkish comments over the weekend from Fed’s Bostic, who said that he could see a .5% rate hike as likely, he subsequently pulled a U-turn on Monday, saying that he didn’t actually see such a hike as necessary and that it wasn’t his preferred option. Following that, a few other Fed policymakers also voiced their opposition to larger rate hikes and reiterated their support for slow and steady tightening. USD weakened in response to these comments as they were seen as taking the steam out of the USD bull move.
Increased BOE Hawkishness
Alongside this softening in Fed commentary, which was disappointing for hawks, we conversely saw an uptick in hawkishness from the BOE. Ahead of the meeting, the market had completely priced in a .25% rate hike which the BOE delivered. However, it was the language at the meeting and some of the finer details which really helped lift GBP. Firstly, four of the bank’s members voted in favour of a larger .5% hike, showing a clear hawkish shift in the bank. Along with the rate hike the BOE also called time on its QE program. So, with the BOE now looking to be more hawkish than the Fed, the dial has turned in favour of GBP with near-term prospects looking for a continued rise in GBPUSD.
Technical Views
GBPUSD
For now, GBPUSD is sitting just ahead of the bear channel top, following the rally above 1.3461. While above here, and with RSI and MACD turning higher, the market looks to be carving out an inverse head and shoulders pattern, suggesting room for a channel break and a further push higher. 1.3676 and 1.38 are the next topside levels to note.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.