GBP Snaps Five-Day Losing Streak Against the Greenback, UK Policy Uncertainty Remains

GBP/USD Fundamental Backdrop

Sterling saw a bounce against the greenback yesterday snapping a five-day losing streak in the process. As much as markets would like to believe we have seen the end of the recent seesaw price action which has become a theme of late, optimism may be misplaced. The Bank of England (BoE) did not cover itself in any glory this week as rhetoric continually shifted regarding the end of its bond buying scheme with the uncertainty weighing on the pound.

The BoE released its Financial Policy Summary yesterday stating that they are responding to severe risks to the UK’s financial stability. The report went on to say that UK households and businesses are under financial pressure with the only positive being that consumers have less debt than before the global financial crisis. This in turn should keep defaults relatively low with banks now required to be flexible in their response.

Rumors continue to rumble that Prime Minister Truss is under increasing pressure, with some of her senior advisors of the opinion that last month’s mini budget needs to go. The growing disconnect between Chancellor Kwarteng and BoE Governor Andrew Bailey has not helped matters, evidenced by comments at the IMF annual meeting in Washington DC. The Chancellor stated that any volatility and turmoil following Friday’s withdrawal of support by the central bank “is a matter for the governor”. This continued uncertainty around the UK’s Fiscal and Monetary policy mix continues to hamper sterling.

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Later in the day we have US CPI data which promises to inject some volatility and quite possibly direction for the pair moving forward. A softer CPI print from the US could result in a push higher for the pair despite the continued hawkish rhetoric from Fed policymakers. A further increase in the inflation print could push the pair back below the 1.10 level and open up the possibility of further downside.

GBP/USD Daily Chart – October 13, 2022

Source: TradingView

From a technical perspective, we have seen the pair staircase its way lower since meeting the key psychological 1.15 level. Sterling did snap a five-day losing streak against the greenback yesterday with gains of around 120-odd pips.

Yesterday’s bullish engulfing daily candle close hints at further upside for the pair with the US CPI potentially providing the catalyst. A bounce higher for the pair would first need to clear the 1.15 psychological level which currently lines up with the 50-SMA providing an area of confluence. Alternatively, should dollar strength return post CPI we could see a break below the 1.10 level with a test 0f 1.0860 support a possibility.

Key intraday levels that are worth watching:

Support Areas

•1.1000

•1.0860

•1.0500

Resistance Areas

•1.1175

•1.1363

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Written by: Zain Vawda, Markets Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda