GBPUSD Tests 1.36 Handle Ahead of BOE’s Interest Rate Announcement

The GBP/USD traded around 1.3593 up 0.34% on Wednesday as investors slowly unwound their short positions ahead of the Bank of England rate decision and quarterly Inflation Report which are due later today. GBP Bulls gathered some momentum and managed to orchestrate a counter-trend move from the 1.3500 handle in the European session and challenged the 1.3600 handle in the American session post dovish PPI MoM and YoY data release. Despite a slip in the PPI inflation report, the US Dollar managed to hold fort during yesterday’s trading session. The inflation data for US is still incomplete as the more important CPI update is due later today. President Trump’s decision Tuesday to pull the US out of the Iran nuclear deal hasn’t had much effect on US dollar’s strength thus far. And with some European markets closed liquidity may be a little thinner in the session ahead prior to the BOE.

GBPUSD Choppy

A look at price activity so far today gives an Impression that traders are cautiously approaching the pair and any major move could only be viewed after the BOE meeting later today. Ahead of the latest batch of soft UK CPI and GDP reports and dovish comments by the head of the Bank of England, the rates markets had priced in a 25-bps rate hike with a likelihood of 100%. The expectations of a rate hike are now at a low of 14.6%, and it would, therefore, be fair to assume that very few traders will be surprised if they leave rates unchanged, and that this will probably have a low impact on the GBP/USD.

Instead, the focus will be if the Bank will increase rates at all this year. The British Pound nosedived from 1.4377 to 1.3485 and in the process breached the long-term ascending trend line. Clearly, the markets have priced-in a delay in the rate hike. The pair is trading at 1.35640 and looks oversold as per the daily relative strength index. Further, the pair has also created back-to-back doji candles on the daily chart, signaling bearish exhaustion. A corrective rally could be in the offing if Bank of England Governor Carney refer to the first quarter slowdown as a temporary lull and keep August rate hike on the table. Post Updates from UK, Traders will also focus on US CPI data.  Expected support and resistance for the pair are at 1.3462 / 1.3325 and 1.3712 / 1.3825 respectively.