It is a relatively quiet day ahead for the GBP to USD. However, BoE MPC member commentary will influence following last week's forward guidance.
It is a relatively quiet day ahead for the GBP/USD. Early in the UK session, construction PMI numbers will draw interest. In January, UK house prices fell for the fifth consecutive month, with inflation and mortgage costs weighing. The mini-budget and Bank of England monetary policy pushed mortgage rates higher, impacting affordability and the housing sector.
Economists forecast the construction PMI to increase from 48.8 to 49.6 in January. The PMI fell from 50.4 to 48.8 in December. Steadying mortgage rates and a less hawkish BoE could raise hopes of a turnaround in sector activity.
While the PMI numbers and sub-components will provide direction, investors should consider Monetary Policy Committee Member speeches. Today, MPC member Catherine Mann will speak at a conference, ‘New dimensions of central banking in the post-covid era.’ Bank of England Chief Economist Huw Pill will attend a monetary policy report live Q&A.
We expect GBP/USD sensitivity to inflation chatter and monetary policy forward guidance.
On Friday, the Bank of England’s Chief Economist said it was important not to push interest rates too high. Continued suggestions of needing to take the foot off the gas would limit any upside for the GBP/USD.
At the time of writing, the Pound was down 0.06% to $1.20432. A mixed start to the day saw the GBP/USD fall to an early low of $1.20293 before finding support.
The Pound needs to move through the $1.2120 pivot to target the First Major Resistance Level (R1) at $1.2197 and $1.22. A return to $1.2150 would signal an extended breakout session. However, the Pound would need a hawkish MPC member chatter to support a breakout session.
In the event of an extended rally, the GBP to USD would likely test the Friday high of $1.22657 but fall short of the Second Major Resistance Level (R2) at $1.2343. The Third Major Resistance Level sits at $1.2566.
Failure to move through the pivot would leave the First Major Support Level (S1) at $1.1974 in play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.19 and the second Major Support Level (S2) at $1.1897.
The Third Major Support Level (S3) sits at $1.1674.
Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 200-day EMA, currently at $1.22136. The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing the 200-day EMA, delivering bearish signals.
A bearish cross of the 50-day EMA through the 100-day EMA would bring S1 ($1.1974) into play. However, a move through R1 ($1.2197) and the 200-day EMA ($1.22136) would bring the 100-day ($1.22778) and 50-day ($1.22850) EMAs into view. A move through the 50-day EMA would send a bullish signal.
It is a quiet day on the US economic calendar. There are no US economic indicators to guide investors. The lack of stats will leave the markets to consider last week’s stats and any FOMC member chatter.
FOMC member reaction to the January Jobs Report would move the dial.
With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.