GBP/USD Needs Hawkish Chatter to Return to $1.1350 and Target $1.15

It was a busy morning for the GBP/USD. From the economic calendar, UK inflation was in focus. Following the UK Government’s U-turn on the mini-budget, uncertainty over the Bank of England’s November policy decision tested buyers at $1.1250 on Tuesday.

Today’s stats provided an idea of what to expect from the Monetary Policy Committee.

In September, the UK inflation rate accelerated from 9.9% to 10.1%. Economists forecast an annual inflation rate of 10.0%.

According to the ONS,

• The Consumers Price Index, including owner occupiers’ housing costs (CBIH), increased by 8.8% year-over-year, returning to July’s recent high.
• Electricity, gas, and other fuels, owner occupiers’ housing costs, food and non-alcoholic beverages, and transport (principally motor fuels) were the largest contributors.
• Rising food prices made the largest upward contribution to the change in the CPIH and CPI annual inflation rates between August and September 2022.

For the BoE, the upward trend in consumer prices supports a hawkish move next month. Bank of England Governor Andrew Bailey talked of the Bank delivering a larger-than-anticipated rate hike in November. However, with the Government U-turn on the mini-budget, the BoE may not step beyond a percentage point hike to curb inflation.

The GBP/USD response to the stats revealed the uncertainty over what lies ahead.

Following today’s stats, MPC members Jon Cunliffe and Catherine Mann will deliver speeches. Comments relating to the inflation numbers and monetary policy will influence. Jon Cunliffe is on the docket to give testimony to the Treasury Select Committee on the gilt market interventions.

GBP/USD Price Action

At the time of writing, the Pound was down 0.15% to $1.13002. A mixed morning saw the GBP/USD rise to an early high of $1.13579 before sliding to a post-stat low of $1.12845.

Technical Indicators

The Pound needs to move through the $1.1328 pivot to target the First Major Resistance Level (R1) at $1.1400 and the Tuesday high of $1.14109. However, following today’s stats, MPC member chatter will need to be hawkish to support a return to $1.14.

In the case of another extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.1484 and resistance at $1.15. The Third Major Resistance Level (R3) sits at $1.1639.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.1245 in play. However, barring another extended sell-off, the Pound would likely avoid sub-$1.12 and the Second Major Support Level (S2) at $1.1172.

The Third Major Support Level (S3) sits at $1.1016.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits below the 200-day EMA, currently at $1.13187.

Following Tuesday’s bullish cross, the 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bullish signals.

A GBP/USD move through the 200-day EMA would support a breakout from R1 ($1.1400) to bring R2 ($1.1484) and $1.15 into view. However, a fall through S1 ($1.1245) would give the bears a run at the 50-day EMA ($1.12314) and the 100-day EMA ($1.12191).

The US Session

It is a quiet day ahead on the US economic calendar, with housing sector data in focus. However, weak numbers are unlikely to force the Fed to rethink its interest rate path to bring inflation to target, despite mortgage rates sitting on the doorstep of 7%.

FOMC member commentary will draw interest, with the markets second-guessing the December move.

According to the CME Group’s FedWatch Tool, the probability of a 75-basis point December rate hike stood at 61.3%. On Tuesday, the FedWatch Tool had the chances of a 75-basis point hike at 65.7%.