GBP/USD Grinds Higher Following its Worst Day of Losses in 2 Weeks

GBP/USD Grinds Higher Following Its Worst Day of Losses in 2 Weeks
GBP/USD Grinds Higher Following its Worst Day of Losses in 2 Weeks
The British Pound (GBP) grinded lower to a two-week low on Thursday as investors reacted negatively to UK data. This led to fears that the Bank of England (BoE) may be forced to raise interest rates. Despite the UK data, GBP/USD recovered slightly as investors digested risk-positive headlines from China and the US debt ceiling.

Traders are expecting the BoE to raise rates by 75bps on Thursday, but are questioning whether the move will be enough to reverse the downward trend in the pound. The Bank of England has been cautious in its monetary policy stance as it is aware that the economy has been growing at a slow pace and inflation has been under pressure.

Investors are also wary of the BoE’s hawkish bias and its potential to impede growth in the UK. This prompted Sterling to drop below $1.2220 to a six-week low earlier in the session.

This decline was accompanied by a fall in the two-year gilt yield, which fell as much as 10 basis points to 3.35%, its lowest level since September. However, the BOE may struggle to stick with restrictive policy for a prolonged period, according to Pooja Kumra, a senior European rates strategist at Toronto-Dominion Bank.

Meanwhile, a strong US GDP reading on Friday is expected to push the Dollar higher as investors await the US Federal Reserve (Fed)’s latest interest rate decision. In the meantime, a light calendar in the UK might allow the GBP/USD pair to grind higher ahead of tomorrow’s data concerning the housing market, industrial activity and producer prices.

USD/GBP Price Analysis
The USD/GBP pair slipped to an eight-month low yesterday, as investors turned bullish on the prospect of the Fed easing its hawkish stance after a weaker-than-expected US GDP number. As a result, the GBP/USD pair surged to a seven-month high and remains supported by risk sentiment.

USD/GBP Price Technical Analysis
The GBP/USD pair is trading in a narrow range with the support line near 1.2000 and resistance at 1.2044. This is a key zone for the pair, and if the currency is able to hold above this area, it could continue its upward momentum.

Besides, the pair is likely to find support at its 50-day moving average (50-DMA), which stands at 1.2000 and resistance at 1.1550. A break above this level would lead to a rally towards 1.2650 in the coming weeks, and possibly beyond.

A break below this level will likely trigger a test of the 1.1200 support and a retest of the November lows at 1.1180. If the price is able to hold above this level, it will continue its upward momentum and perhaps even breach the resistance at 1.1550 in the coming weeks.