GBP/USD at Risk of Sub-$1.1250 on Monetary Policy Divergence

It is a quiet day for the GBP/USD. From the economic calendar. UK construction PMI numbers are out later this morning. However, the PMI is unlikely to influence the Bank of England’s next policy move or the Pound.

Following the Pound’s slide against the greenback on Wednesday, dovish FOMC member chatter or a marked increase in US jobless claims would deliver Pound support. The ISM Non-Manufacturing PMI numbers from the US raised bets of a 75-basis point Fed rate hike in November.

By contrast, the UK government’s U-turn on tax cuts eased pressure on the Bank of England to take a more aggressive path to tackle inflation.

From the Bank of England, there are no Monetary Policy member speeches for the markets to consider. However, any central bank comments to the media would need consideration.

GBP/USD Price Action

At the time of writing, the Pound was up 0.23% to $1.13517. A mixed start to the day saw the Pound fall to an early low of $1.12930 before rising to a high of $1.13833.

Technical Indicators

The Pound needs to avoid the $1.1349 pivot to target the First Major Resistance Level (R1) at $1.1472 and the Wednesday high of $1.14952. However, US economic indicators and FOMC member chatter would need to be Pound-friendly to support a return to $1.1400.

In the case of an extended rally, the GBP/USD would likely test resistance at $1.15 but fall short of the Second Major Resistance Level (R2) at $1.1618. The Third Major Resistance Level (R3) sits at $1.1887.

Later today, US jobless claims will draw interest ahead of the nonfarm payrolls on Friday.

A fall through the pivot would bring the First Major Support Level (S1) at $1.1203 into play. However, barring another extended sell-off, the Pound would likely avoid sub-$1.12 and the Second Major Support Level (S2) at $1.1080.

The Third Major Support Level (S3) sits at $1.0811.

Looking at the EMAs and the 4-hourly chart, the EMAs send a more bullish signal. The GBP/USD sits above the 100-day EMA, currently at $1.12425. The 50-day closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bullish signals.

A bullish cross of the 50-day EMA through the 200-day EMA would support a return to $1.14. However, a fall through the 100-day EMA ($1.XXX) would give the bears a run at the 50-day EMA ($1.12077) and S1 ($1.1203). The 200-day EMA sits at $1.14087.

The US Session

It is a quieter day ahead on the US economic calendar. The US labor market is in the spotlight, with the weekly jobless claims in focus.

Another fall in initial jobless claims would support a more hawkish Fed move in November. However, it will all boil down to the nonfarm payrolls on Friday. If the ADP numbers from Wednesday are a gauge, the Fed is unlikely to take the foot off the gas before the end of the year.

FOMC member commentary will also need monitoring.