GBP/USD licks Fed-linked wounds at 37-year low under 1.1300, focus on BOE, Russia
- GBP/USD seesaws around multi-year low after a volatile day in favor of the bears.
- US dollar rises after Fed matched market forecasts with 75 bps rate hike, Powell predicts painful journey to tame inflation.
- Fears from Russia’s announcement of mobilization of troops, China supersede stimulus efforts from the UK’s new government.
- BOE is likely to announce 0.50% rate hike can offer positive surprise to Cable buyers while following friends in the line.
GBP/USD bears take a breather at the fresh low since 1985, portrayed after Fed-inspired losses, as traders brace for the Bank of England’s (BOE) monetary policy decision during Thursday. Also restricting the Cable pair’s immediate moves could be the lack of major catalysts during the initial Asian session.
The quote dropped the fresh 37-year low after the US Federal Reserve (Fed) announced 75 basis points (bps) of a rate hike. The Fed’s action was the third one in a line of such kind, as it wants to tame inflation fears even at the cost of a “sustained period of below-trend growth” and a softening in the labour market. Fed Chairman Jerome Powell also signalled that the way to tame inflation isn’t painless ahead. While the Fed matched market forecasts, the economic fears surrounding the rate hikes and expectations of another 0.75% increase in November kept the US Dollar on the front foot, despite marking heavy volatility around the announcements.
Other than the Fed-linked moves, Russian President Vladimir Putin’s announcement to mobilize partial troops also reignited the Ukraine-linked geopolitical fears and drowned the GBP/USD prices. Russian President Putin threatened the West on Wednesday, noting that “We have lots of weapons to reply, it is not a bluff.” Following him was Russian Defence Minister Sergei Shoigu who said that “We are fighting not only with Ukraine but the collective west.” In a reaction, German Economy Minister Robert Habeck said, “Partial mobilization of Russian troops is a bad and wrong development,” adding that the “Government is in consultations on next step.” Jens Stoltenberg, NATO's Secretary General, told Reuters that Russian President Putin's announcement of military mobilization and threat to use nuclear weapons was "dangerous and reckless rhetoric."
At home, UK Business Department announced on Wednesday that said it would cap the cost of electricity and gas for businesses. Following that, British Prime Minister Liz Truss also mentioned that they will be introducing low-tax investment zones across the UK, as reported by Reuters. It should be noted that the UK PM Truss also reiterated that they are open to negotiating a trade deal when the US is ready to do so.
Against this backdrop, Wall Street ended the day on a negative tone while the US Treasury yields also dropped amid the market’s rush for risk safety, which in turn drowned the AUD/USD prices due to the pair’s risk-barometer status.
Looking forward, GBP/USD traders will pay attention to the BOE moves as the “Old Lady”, as it is popularly known, is expected to announce a 50 basis points (bps) of rate hike amid increasing inflation fears. However, the BOE’s peers from the US, Sweden and Brazil have recently announced a 0.75% rate increase and the central bank is under pressure to take a big move, even if the latest UK statistics doesn’t support the claim, which in turn hints at a positive surprise from the British central bank and a corrective bounce of the Cable.
Technical analysis
Unless bouncing back beyond the lower line of a four-month-old bearish channel, around 1.1300 by the press time, GBP/USD is vulnerable to printing more downside. In that case, the 1.1000 psychological magnet and the year 1985 low near 1.0520 will be in focus.