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  • GBP/USD navigates its third consecutive session of losses.
  • Weakness is expected to accelerate below the 200-day SMA.
  • Markets' attention shifts to the BoE's Super Thursday.

So far on Wednesday, GBP/USD is trading slightly defensive around the 1.2500 area, amid growing investor caution ahead of the BoE Super Thursday.

Also contributing to the bearish bias of the Pound is the continuation of the constructive trend of the Dollar, which continues to be supported by new sales in the US bond market, which in turn transform into an additional rise in US yields. .US throughout the curve.

As for the US Dollar (USD), Minneapolis Federal Reserve President Neel Kashkari's comments on Tuesday appear to have given an additional boost to the currency after expressing a more optimistic stance on the housing market's resilience to monetary tightening. while suggesting the possibility of further policy adjustments if inflation persists.

Meanwhile, widespread talk pointing to growing policy divergence between the Federal Reserve (Fed) and the rest of its G10 counterparts continues to dominate market sentiment and is expected to keep the US dollar in positive territory in the short and medium term. .

According to CME Group's FedWatch tool, there is about a 65% chance that the central bank will cut its interest rates at its September 18 meeting.

The Bank of England (BoE) will reveal its monetary policy decisions later on Super Thursday. Although the “Old Lady” is expected to keep its official interest rate unchanged at 5.25%, the persistent decline in national inflation and expectations of a sustained decline in consumer prices in the coming months open the door to a possible dovish tone at the bank's meeting, which could, in turn, keep the selling pressure around the pound intact.

GBP/USD Technical Analysis

Immediately to the upside in GBP/USD the key 200-day SMA at 1.2542 now emerges. Once the pair breaks above this zone, it could embark on a possible challenge to the May high at 1.2634 (May 3). Higher is the April high of 1.2709 (April 9), ahead of the weekly high of 1.2803 (March 21). Further gains from here should target the 2024 high at 1.2893 (March 8) again before the weekly high of 1.2995 (July 27, 2023), and the psychological mark of 1.3000.

Conversely, initial support lies at the 2024 low of 1.2299 (April 22), seconded by the weekly low of 1.2187 (Nov 10, 2023). If the bears break the latter, the cable could attempt a move towards the October 2023 low at 1.2037, ahead of the crucial 1.2000 containment zone. Furthermore, the daily RSI is again around 46.

BoE FAQ

The Bank of England (BoE) decides the UK's monetary policy. Its main objective is to achieve price stability, that is, a constant inflation rate of 2%. Its instrument to achieve this is the adjustment of basic loan rates. The BoE sets the rate at which it lends to commercial banks and at which banks lend to each other, determining the level of interest rates in the wider economy. This also influences the value of the British Pound (GBP).

When inflation exceeds the Bank of England's target, it responds by raising interest rates, which makes access to credit more expensive for citizens and companies. This is positive for the British Pound, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls below target, it is a sign that economic growth is slowing, and the Bank of England will consider lowering interest rates to make credit cheaper in the hope that companies will borrow to invest in projects that generate growth, which is negative for the Pound sterling.

In extreme situations, the Bank of England can apply a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit into a clogged financial system. QE is a policy of last resort when lowering interest rates does not achieve the necessary result. The process of QE involves the Bank of England printing money to buy assets, typically government bonds or AAA-rated corporate bonds, from banks and other financial institutions. QE usually results in a weakening of the British pound.

Quantitative tightening (QT) is the reverse of QE, and is applied when the economy is strengthening and inflation begins to rise. While in QE the Bank of England (BoE) buys government and corporate bonds from financial institutions to encourage them to lend, in QT the BoE stops buying more bonds and stops reinvesting the maturing principal of the bonds that you already own. It is usually positive for the British pound.

  • GBP/USD navigates its third consecutive session of losses.
  • Weakness is expected to accelerate below the 200-day SMA.
  • Markets' attention shifts to the BoE's Super Thursday.

So far on Wednesday, GBP/USD is trading slightly defensive around the 1.2500 area, amid growing investor caution ahead of the BoE Super Thursday.

Also contributing to the bearish bias of the Pound is the continuation of the constructive trend of the Dollar, which continues to be supported by new sales in the US bond market, which in turn transform into an additional rise in US yields. .US throughout the curve.

As for the US Dollar (USD), Minneapolis Federal Reserve President Neel Kashkari's comments on Tuesday appear to have given an additional boost to the currency after expressing a more optimistic stance on the housing market's resilience to monetary tightening. while suggesting the possibility of further policy adjustments if inflation persists.

Meanwhile, widespread talk pointing to growing policy divergence between the Federal Reserve (Fed) and the rest of its G10 counterparts continues to dominate market sentiment and is expected to keep the US dollar in positive territory in the short and medium term. .

According to CME Group's FedWatch tool, there is about a 65% chance that the central bank will cut its interest rates at its September 18 meeting.

The Bank of England (BoE) will reveal its monetary policy decisions later on Super Thursday. Although the “Old Lady” is expected to keep its official interest rate unchanged at 5.25%, the persistent decline in national inflation and expectations of a sustained decline in consumer prices in the coming months open the door to a possible dovish tone at the bank's meeting, which could, in turn, keep the selling pressure around the pound intact.

GBP/USD Technical Analysis

Immediately to the upside in GBP/USD the key 200-day SMA at 1.2542 now emerges. Once the pair breaks above this zone, it could embark on a possible challenge to the May high at 1.2634 (May 3). Higher is the April high of 1.2709 (April 9), ahead of the weekly high of 1.2803 (March 21). Further gains from here should target the 2024 high at 1.2893 (March 8) again before the weekly high of 1.2995 (July 27, 2023), and the psychological mark of 1.3000.

Conversely, initial support lies at the 2024 low of 1.2299 (April 22), seconded by the weekly low of 1.2187 (Nov 10, 2023). If the bears break the latter, the cable could attempt a move towards the October 2023 low at 1.2037, ahead of the crucial 1.2000 containment zone. Furthermore, the daily RSI is again around 46.

BoE FAQ

The Bank of England (BoE) decides the UK's monetary policy. Its main objective is to achieve price stability, that is, a constant inflation rate of 2%. Its instrument to achieve this is the adjustment of basic loan rates. The BoE sets the rate at which it lends to commercial banks and at which banks lend to each other, determining the level of interest rates in the wider economy. This also influences the value of the British Pound (GBP).

When inflation exceeds the Bank of England's target, it responds by raising interest rates, which makes access to credit more expensive for citizens and companies. This is positive for the British Pound, as higher interest rates make the UK a more attractive place for global investors to invest their money. When inflation falls below target, it is a sign that economic growth is slowing, and the Bank of England will consider lowering interest rates to make credit cheaper in the hope that companies will borrow to invest in projects that generate growth, which is negative for the Pound sterling.

In extreme situations, the Bank of England can apply a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit into a clogged financial system. QE is a policy of last resort when lowering interest rates does not achieve the necessary result. The process of QE involves the Bank of England printing money to buy assets, typically government bonds or AAA-rated corporate bonds, from banks and other financial institutions. QE usually results in a weakening of the British pound.

Quantitative tightening (QT) is the reverse of QE, and is applied when the economy is strengthening and inflation begins to rise. While in QE the Bank of England (BoE) buys government and corporate bonds from financial institutions to encourage them to lend, in QT the BoE stops buying more bonds and stops reinvesting the maturing principal of the bonds that you already own. It is usually positive for the British pound.

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