GBP/USD and a Return to $1.16 in the Hands of MPC Member Chatter

It is a quiet day for the GBP/USD. According to the economic calendar, there are no UK economic indicators for the markets to consider.

The lack of UK economic indicators continues to leave the GBP/USD in the hands of UK government chatter and Bank of England monetary policy.

On Tuesday, the Bank of England’s Chief Economist spoke about the need for more monetary policy tightening through rate hikes to tackle inflation. Huw Pill’s comments aligned with the views he had shared on Friday.

On Friday, the Bank’s Chief Economist stated,

“Our target is ultimately not on the real economy. Our target necessarily, because we’re running monetary policy, is to contain inflation.”

Considering Huw Pill’s comments and the Bank of England’s grim economic outlook, the UK economy is heading for choppier waters.

The bigger question is whether the UK Government can provide the necessary fiscal support without offsetting the Bank of England’s moves to bring inflation to target.

Uncertainty over the economic outlook and the Autumn budget left the Pound range-bound on Tuesday. However, Bank of England commentary and updates from the UK Government could move the dial.

Monetary Policy Committee members Jonathan Haskel and Sir Jon Cunliffe speak today.

GBP/USD Price Action

At the time of writing, the Pound was down 0.04% to $1.15352. A mixed morning saw the GBP/USD fall to an early low of $1.15226 before rising to a high of $1.15594.

Technical Indicators

The Pound needs to avoid a fall through the $1.1523 pivot to target the First Major Resistance Level (R1) at $1.1616. Market risk sentiment and MPC member chatter need to be bullish to support a breakout from the Tuesday high of $1.15991.

In the case of a BoE-fueled extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.1693. The Third Major Resistance Level (R3) sits at $1.1862.

A fall through the pivot would bring the First Major Support Level (S1) at $1.1446 into play. However, barring a risk-off-fueled sell-off, the Pound would likely avoid sub-$1.14 and the Second Major Support Level (S2) at $1.1353.

The Third Major Support Level (S3) sits at $1.1183.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.14338. The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.14338) would support a breakout from R1 ($1.1616) to target R2 ($1.1693) and $1.17. However, a fall through the 50-day EMA ($1.14338) would bring the 100-day ($1.13955) and 200-day ($1.13803) EMAs and S1 ($1.1446) into view.

The US Session

It is another quiet day ahead on the US economic calendar. There are no economic indicators to guide the Dollar Spot Index (DXY). The lack of stats will leave the focus on the US mid-term elections and FOMC member chatter.

While the bets of a December Fed pivot have gathered momentum, the FedWatch Tool has the probability of a 75-basis point rate hike at 43.2%. The numbers investor reflect uncertainty that should increase GBP/USD sensitivity to Fed commentary.