The GBP / USD pair witnessed good price movements on Wednesday and finally settled in the red, close to the 1.3600 mark or the one-month lows. It was the fourth day of negative closing in the previous five and was sponsored exclusively by the resurgent demand for US dollars in response to the more hawkish Fed.
The US Federal Reserve said the pace of asset purchases could soon be justified if economic progress continues as expected. Moreover, Fed Chairman Jerome Powell added that purchases of pandemic-era assets could be halted by mid-2022. This, in turn, should pave the way for an earlier rise in interest rates, which was confirmed by the so-called dot plot which revealed a growing tendency to raise interest rates in 2022.
However, the risk impulse of the markets has limited any additional gains for greenbacks. Troubled Chinese entrepreneur Evergrande Group agreed to settle interest payments on domestic bonds on Wednesday and alleviate immediate concerns about the spillover effect on other real estate companies and banks. In addition, the People’s Bank of China injected 90 billion yuan ($ 13.9 billion) into the banking system and boosted global risk sentiment.
This, along with declining US government bond yields, put some pressure on the US dollar and helped the pair protect / attract a new purchase near the 1.3600 mark on Thursday. The pair climbed closer to the middle of 1.3600 during the Asian session, as the focus of the market is now shifting to the monetary policy meeting of the Bank of England.
The UK’s central bank is expected to keep interest rates stable as it nears the end of the £ 875bn asset purchase program. The BoE is ahead of other major central banks in planning to stop QE by the end of this year.
Therefore, investors will be more interested in the tone of the statement against the background of expectations for a tighter monetary policy next year. However, the announcement may introduce some instability around the GBP cross.
Addressing the risk of central bank events, the flash version of PMI in the UK for manufacturing and services could affect the British pound. Later in the early session in North America, the US economic paper – including the publication of PMI’s initial initial unemployment claims and flash prints – will also be considered for some trading opportunities.
Technically, the main currency pair has reached the bottom of the three-month range and is showing recovering demand. The sellers will place their orders around the psychological barrier of 1.3700, if a break of the level is rejected, the price would be directed to a potential downward break of the range. On the other hand, a break above 1.3700, the price will go to 1.3800 and to 100 SMA.