BRITISH POUND OUTLOOK: GBP/USD PRICE ACTION HINGES ON BANK OF ENGLAND
- Pound-Dollar has staged a healthy 170-pip rebound over the last three trading sessions
- GBP/USD implied volatility elevated due to event risk posed by the BoE rate decision
- Don’t miss our preview for the Bank of England meeting and how the GBP might react
GBP/USD price action has perked up a bit over the last few trading sessions. The Pound-Dollar seems to be ricocheting nicely off the 1.3800-handle, though this follows a bearish breakdown of ascending trend support. The 400-pip slide from year-to-date highs by GBP/USD largely corresponded with renewed covid concerns across the UK with selling pressure being exacerbated by the Fed’s recent hawkish pivot.
GBP/USD PRICE CHART: DAILY TIME FRAME (21 MAY TO 23 JUNE 2021)
That said, near-term outlook for the Pound Sterling and GBP/USD will likely be dictated by the upcoming Bank of England interest rate decision. As my colleague Justin McQueen points out in this BoE meeting preview, there are rising expectations for a relatively more hawkish Bank of England. GBP/USD could extend its rebound if this is confirmed. The central bank is widely anticipated to leave its policy interest rate unchanged, and there will be no updated monetary policy report, so markets will likely place focus on guidance for QE.
Nevertheless, there appears to be noteworthy potential that the BoE signals a shift in policy. This is judging by GBP/USD overnight implied volatility of 10.8%, which is above its 20-day average reading of 6.6% and ranks in the top 88th percentile of measurements taken over the last 12-months. GBP/USD risk reversals also seem to have shifted to a less-bearish bias with overnight skew rising from -0.45 to -0.36.
The Pound-Dollar could see the 20-day and 50-day simple moving averages come into focus if there is a bullish reaction by GBP price action following the Bank of England. If the BoE decision disappoints hawks, however, traders might send GBP/USD snapping back lower toward the 1.3800-price level. This area of buoyancy is underpinned by the bottom Bollinger Band.
— Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
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