GBP Continues to Fight Back
With the holiday shortened week in the US due to Thanksgiving, it’s been a quieter session for markets this week. However, we’ve seen some important developments and while we haven’t quite seen the largescale volatility of recent weeks, there have certainly been some noteworthy moves. Chatting with traders ahead of the weekend, it seems the main move capturing attention is the rally in GBP. The Pound rallied almost 4% against USD week with the pair now up around 18% off the all-time lows printed on the back of the September mini-budget debacle. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If you missed it? There’s always next week.
What Caused the Move?
USD Sell Off
A big factor driving the pair higher this week was the fresh selling we saw in USD. With traders still eagerly attempting to gauge whether the Fed will push ahead with a further large hike in December or soften its approach to a smaller increase, Wednesday’s FOMC minutes were pivotal. The minutes showed that Fed members agreed that a smaller pace of hikes would be appropriate soon. While no specific timing was mentioned, traders have taken the minutes to mean that December is likely to see a smaller .5% hike, especially on the back of the sharp drop in October inflation.
Political Stability Helping GBP
In terms of GBP then. UK investor sentiment has recovered firmly from the post-September budget crash. With gilt yields having fallen back to pre-budget levels and with the UK chancellor having laid out a much more credible budget, GBP has been rebounding strongly. A big part of this looks to be linked to the better political stability we’ve seen since Sunak took over. On the back of the chaotic final days of the Johnson government and the mess that was the Truss government, Sunak is running a much tighter ship, which investors appear to be welcoming.
Downside Risks for GBP
Looking ahead, however, there are plenty of risk factors for GBP and the UK economy. The OECD warned this week that the UK is facing a recession which the rest of the G7 is not and among developed economies is forecast to be the second worst performer next year. Additionally, with inflation still at multi decade highs and the BOE expected to continue hiking near-term, UK consumers are in for a tough holiday season.
Technical Views
GBPUSD
The rally in GBPUSD has seen price moving higher within a clear bullish channel off the lows. Price is now fast approaching a test of the 1.2195 resistance area (August highs). This is a key area for price and a break higher here will be firmly bullish putting focus on 1.2659 next. To the downside, 1.1474 is the key support to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.