GBP/USD failed to benefit from the modest US Dollar (USD) weakness seen in the American session on Monday and closed the day virtually unchanged. Following a short-lasting recovery attempt toward 1.2400 early Tuesday, the pair lost its traction and came in within a touching distance of the multi-month low it set at 1.2730.
Although the UK’s FTSE 100 Index and US stock index futures trade in positive territory in the European session, GBP/USD finds it difficult to attract bulls. Ahead of the Federal Reserve (Fed) and the Bank of England’s (BoE) monetary policy announcements on Wednesday and Thursday, respectively, investors remain hesitant to position themselves for a steady rebound in the pair. Furthermore, the UK’s Office for National Statistics will publish Consumer Price Index (CPI) for August early Wednesday.
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies this week. Pound Sterling was the weakest against the Canadian Dollar.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Economists at ING said that they are not surprised to see investors staying “broadly defensive” ahead of this week’s key events. Previewing the BoE meeting, “our base case remains a rate hike, although the upside for Sterling would entirely depend on whether the BoE will convince markets they can do more,” they added.
In case Wall Street opens on a bullish note and main equity indexes push higher, the USD could stay on the back foot. GBP/USD could limit its losses in that scenario but a decisive move to the north could be hard to come by.
GBP/USD started to edge lower after touching the upper limit of the descending regression channel on Tuesday. In the meantime, the Relative Strength Index stays below 40, reflecting the lack of buyer interest.
On the downside, 1.2360 (mid-point of the descending channel) aligns as first support. A 4-hour close below that level could open the door for an extended slide toward 1.2300 (psychological level, static level).
If the pair rises above 1.2400 (20-period Simple Moving Average (SMA), upper limit of the descending channel) and stabilizes there, sellers could move to the sidelines. In that case, additional gains toward 1.2450 (static level, 50-period SMA) could be witnessed.