- The pound has had its biggest monthly gain in over a year.
- The BoE is expected to deliver a 75bps hike this week.
- The BoE might surprise markets with a smaller hike as the British economy faces a looming recession.
Today’s GBP/USD outlook is bearish as the British economy heads for recession. Despite falling on Monday, the pound was still on track to post its biggest monthly gain in more than a year as the recent political turmoil in Britain finally seemed to be subsiding.
-Are you looking for automated trading? Check our detailed guide-
The pound gained 3.5% in October, the most in a single month since July 2020, when it increased by 5.5%, after hitting a historic low of $1.0327 versus the dollar in late September. When it meets later this week, the Bank of England is expected to increase interest rates by 75 basis points. The British economy is contracting. However, rising energy prices and a weak currency have fueled a cost-of-living crisis that has driven consumer inflation into double digits.
In light of this, analysts claimed that the markets may be overestimating the BoE’s potential actions and that there was more room for a dovish surprise than anticipated.
“The market firmly prices 75 bp, but we think the risk of a softer 50 bp is under-priced as the BoE prepares for the coming recession,” ING strategist Chris Turner said.
Money markets indicate that traders assign a nearly 100% possibility of a three-quarter point rate increase from the BoE. It is anticipated that UK interest rates will peak at roughly 4.87% in September of next year, up from their present level of 2.25%.
GBP/USD key event today
Investors are expecting the manufacturing PMI report from the UK. They are also awaiting the ISM manufacturing PMI and JOLTs job openings reports from the US.
GBP/USD technical outlook: Bears leading after a double top
Looking at the 4-hour chart, we see the price trading below the 30-SMA and the RSI below 50, showing bears are in charge. The price was in a bullish trend when it got to the 1.1619 resistance level and stopped. A second attempt to push above this level failed, making a double-top.
-If you are interested in forex day trading then have a read of our guide to getting started-
Bears returned with enough strength to break below the 30-SMA, signaling a shift in sentiment to bearish. If bears can keep the price below the SMA, it might retest support at 1.1269.
Looking to trade forex now? Invest at eToro!
67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Share
Saqib Iqbal
