GBP Outlook Stays Bleak After Selloff Amid FED Expectations

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At first glance, the headlines from this week’s Bank of England (BoE) meeting appear to provide mixed signals to the GBP. As the market adjusts to the fact that the MPC’s ability to present a more confident tone is dwindling. GBP eases from 1.3692 intraday high maintaining the corrective drop of the monthly low ahead of the American open on Tuesday. As the US dollar weakens on modestly bullish market mood, the cable pair’s current bounce marks the first positive day in four.

The risk sentiment looks to have leveled off. The Nikkei’s dramatic drop was simply a post-holiday catch-up. The yen and the Swiss franc have recovered some of their losses, but they remain the strongest currencies for the week. Sterling has had the worst performance of all the major currencies so far, much worse than commodity currencies. The Pound is being weighed down by the sale of European crosses. Overall, the markets may become cautious today, as the FOMC meeting on Wednesday poses a greater risk.

The worldwide push for sustainable energy, led primarily by UK Prime Minister Boris Johnson, is bolstered by US President Joe Biden’s appointment to the United Nations (UN) partnership. In the same vein, there were discussions about the US debt ceiling extension and recent positive US housing data, which cast doubt on the Fed’s tapering fears.

On the plus side, statements from the UK’s business secretary, Kwasi Kwarteng, who dismissed fears about energy shortages, could help. Furthermore, UK Prime Minister Boris Johnson’s recent words that the UK-France relationship is “indestructible” favor the currency pair to pick up bids.

GBP May Lose Pace Without a Hawkish BoE Tone

GBPUSD is being challenged on the downside by a two-month-old rising support line near 1.3640, ahead of the August month’s low of 1.3602. To persuade buyers, recovery advances must cross the September 2009 bottom around 1.3730.

Investors will also pay attention to the Bank of England’s latest policy report, which is planned for Thursday. The GBP/USD pair’s next leg of a directional move should be determined by significant central bank events. Any initial GBP gains following the BoE meeting may fizzle out unless there is clear evidence of the MPC adopting a more hawkish tone.

GBPUSD traders may be optimistic ahead of UK Prime Minister Boris Johnson’s visit to the US, given the buoyant market sentiment and the US dollar’s recent decline. Fears about Fed tapering, China’s reaction to the Evergrande affair, and covid troubles, on the other hand, may pose a challenge to pair buyers.