British Pound Bolts Higher on Soft US Dollar and BoE Hawks. Will it Keep Going?
BRITISH POUND, GBP/USD, US DOLLAR, BOE, CHINA, RBA, AUD/USD - TALKING POINTS
- The British Pound has found strength as rate hikes appear likely.
- Softer US yields saw risk assets and currencies move up on the day.
- US Dollar weakness saw Sterling rally. Is it going to continue?
The British Pound moved higher as the US Dollar weakened in the Asian session today. US yields fell over-night and markets generally went for a ‘risk on’ approach. Commodity currencies led the way higher. Solid US earnings announcements led APAC equities higher to varying degrees. Hong Kong’s Hang Seng Index was the best performer of the broad-based bourses.
In China, Evergrande had a Yuan bond coupon payment due today and there are no indications yet that it has been paid. The issues around the corporate crackdowns appear to be pivoting in a slightly different direction in China.
Property, technology and especially energy sectors have seen higher regulatory hurdles in implementing China’s ‘shared prosperity’ policy. However, many Chinese are starting to feel the effects of these changes in the day to day lives. A step back from a hard-line approach might be seen soon. The transition to green energy may take longer than originally thought.
The Bank of England Governor Andrew Bailey’s comments yesterday have seen November and December monetary policy committee meetings become live for rate hikes. Sterling made a new high for the month in Asian trade. He made plain that the BOE has signaled that “it will have to act on inflation”.
The RBA minutes came out and some market commentators perceived that there might be a delay in raising the cash rate. The bank stipulated in the minutes that hikes would not occur until inflation was within the mandated target of 2-3%. It’s possible that this is a misinterpretation. In any case AUD/USD went higher today.
Further ahead, a number of Bank of England speakers will have more attention than usual. In the US, housing starts and building permits data are due out.
GBP/USD TECHNICAL ANALYSIS
GBP/USD has broken up through several resistance levels since making a low at the end of last month. It is currently above the 260-day simple moving average of 1.3726. This level could provide support.
The next potential resistance is a descending trend line currently intersecting at 1.3800. Previous highs at 1.3913 and 1.3982 may offer resistance.
On the downside, the pivot point at 1.3674 might provide support and below that, previous lows at 1.3544 and 1.3412 are possible support levels.
Written by Daniel McCarthy, Strategist for DailyFX.com. 19th October 2021
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