Market news

16 December 2021

GBP/USD steady around 1.3330s after Fed and BoE monetary policy decisions

  • The British pound printed a 100-pip gain after the Bank of England (BoE) delivered an unexpected rate hike.
  • The Federal Reserve meeting event turned to a “buy the rumor, sell the fact event,” delivering the market expectations.
  • GBP/USD Technical Outlook: Tilted upwards, but a clear break of 1.3353 would send the pair rallying towards 1.3400; otherwise, a move back to 1.3300 is on the cards.

At the time of writing, the British pound extends its Thursday rally, trading at 1.3336 during the New Tork session. Early in the European session, the Bank of England (BoE) surprisingly pulled the trigger and hiked 15 basis points its overnight interest rates up to 0.25% in an 8-1 vote, with Sylvana Tenreyro as the only dissenter. Additionally, on Wednesday, the Federal Reserve increased its bond taper speed to double the agreed in November, and per dot-plot depicted, its policymakers eye at least three hikes in 2022.

That said, the Federal Reserve monetary policy decision turned to a “buy the rumor, sell the fact event,” with equities rallying to all-time-highs, while risk-sensitive currencies like the GBP, the CAD, and the antipodeans climbed against the greenback. 

BoE’s decision comes amid a COVID-19 outbreak with cases in the UK as of December 15, topping around 78,610 new cases as the Omicron variant spread worldwide continues. Furthermore, UK’s central bank said that “modest” tightening would probably be needed, as they expect inflation to peak at 6% by April of 2022.

In the meantime, US Bond yields in the short term of the curve fall between one and four basis points, led by 2s, 5s, and 10s at 0.6431%, 1.2092%, and 1.458%, each, a headwind for the buck, with its US Dollar Index back under the 96 handle, down 0.64%, at 95.89.

In the US economic docket, the Initial Jobless Claims for the week ending on December 11 rose to 206K, more than the 200K, a tick higher than the previous one. Concerning Continuous Claims, fell to 1.845M, from 1.999 on the week previous, and better than the 1.934M estimated. 

Further, US Housing Starts rose to 11.8% yearly based, while Building Permits increased by 3.6%.

GBP/USD Price Forecast: Technical outlook

The GBP/USD daily chart shows a downward bias in the mid-term, as depicted by the daily moving averages (DMAs) above the spot price. At press time, the pair jumped off the 61.8% Fibonacci retracement, which lies at 1.3273, piercing the November 12 swing low-turned-resistance at 1.3353.

To the upside, a clear breach of the latter would expose 1.3400, followed by the 50% Fibonacci retracement at 1.3458.

Failure at 1.3353 would open the door for a retest of the 61.8% Fibonacci retracement under 1.3300 at 1.3273, followed by a challenge of the YTD low at 1.31600 that, it gives way, could send the pair tumbling to the 78.6% Fibonacci retracement at 1.3009.

 

 

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