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Nov 24 - 01:55 PM

GBP/USD - COMMENT-Sterling Remains Soft As Price Linked To Relative Rate Expectations

By Paul Spirgel  —  Nov 24 - 10:46 AM

Sterling fell to a fresh 2021 low of 1.3325 on Wednesday as the dollar rose on upbeat data that has traders expecting a stepped-up removal of Fed accommodation and U.S. rate hikes earlier than previously expected.

The pound's weakness comes amid tempered expectations of BoE hikes as well with rising COVID cases and potential lockdowns on the continent, which could hurt UK growth and inflation expectations.

Markets remain less convinced of the BoE's hawkish resolve since it unexpectedly held rates steady in November and have dialed back projections of a 25bps hike in December in favor of a 15bps move BOEWATCH.

GBP/USD's offered tone is likely to remain intact as long as Fed hike expectations remain elevated.
In contrast, BoE hike expectations are much more aggressive than perceptions about the ECB, which should keep pressure on EUR/GBP.

Should the BoE shift back to a more hawkish policy outlook, COVID anxieties abate and European growth and inflation rise, the pound is likely to rebound, putting 10-day moving average resistance at 1.3417 and the 50% Fib of 1.3834-1.3333 at 1.3584's in sharper focus.

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GBP & EURGBP Rate Diff charts: Click here

GBP Chart: Click here

Source:
Refinitiv IFR Research/Market Commentary

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