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Pound Under Pressure

The British Pound has been among the chief victims of the fresh strength we’ve seen in USD on the back of Powell’s comments yesterday. With better UK data out yesterday (housing and retail sales), the reasoning might seem unclear. However, the move can be easily explained by considering traders’ expectations with regard to future Fed and BOE monetary policy.
 

Hawkish Fed Expectations

The Fed is widely expected to press ahead with more aggressive tightening this year. While this view was steadily building amidst the recent run of data strength we’ve seen in the US, and a fresh inflation spike, yesterday’s comments from Powell helped solidify this perspective. With Powell warning that rates will likely need to be hiked at a bigger and/or faster pace than previously thought, the market is now pricing in a larger .5% hike this month.
 

Dovish BOE Expectations

In contrast, the BOE, which it’s fair to say has been reluctant throughout its tightening cycle, has recently signalled that it might be about to pivot on rates. The BOE recently hiked rates to 4%, their highest level in 14 years. However, with BOE governor Bailey acknowledging that disinflation had begun and that further rate increases would be data dependant, traders are now expecting a smaller .25% hike from the bank ahead of tightening be paused altogether before summer. This view is creating downward pressure in GBPUSD and the pair looks set to continue lower while incoming data and commentary support this narrative.
 

Technical Views

GBPUSD

(Click on image to enlarge)

The reversal lower in GBPUSD from the highs around 1.25 has seen the pair breaking down through the triangle pattern which had framed the recent consolidation. Price is now testing below the 1.1891 level which is a big support area. If we break below here, the focus is on a further move down towards 1.1493 in line with bearish momentum studies readings. 

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