GBP/USD Tapering Caution – Covid Fears May Impact BoE Policy

  • GBP/USD tapering caution with Bank of England to keep its interest rate unchanged at 0.10%.
  • US policymakers inch closer to further stimulus, raising hopes over the economic recovery.
  • Forex trading market participants may buy above 1.3875 to target the $1.3985 on Thursday.

GBP/USD tapering caution was dominating the market during the Asian trading session, as the pair extends its bearish bias and remains in the red zone below the 1.3900 level. The broad-based US dollar strength kept the currency pair under pressure. Due to the upward trend line support, the GBP/USD price forecast remains bullish above the 1.3875 level.

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BoE Monetary Policy Report & Impact on GBP/USD

The cautious sentiment ahead of the BoE Monetary Policy Report keeps the GBP/USD pair under pressure. The BoE is expected to leave its policy unchanged, however, the focus will remain on the MPC votes. Perhaps, that’s why traders did not give any significant heed to the pre-NFP woes, stimulus hopes, and Brexit positive headlines.  

Dave and Saunders Suggests QE Tapering 

Monetary Policy Committee members Dave Ramsden and Michael Saunders called on the bank to end accommodative policies. This ultimately triggered a spike in Cable. 

Therefore, investors will be expecting them to vote in support of the dovish decision at voting. Considering the increased number of COVID-19 cases, sluggish economic growth, and Brexit, the BoE may convey a cautious message at its “Super Thursday.” meeting. It would weigh on GBP/USD currency pair, but probably not for too long. 

Hawks vs. Doves on Tapering Asset Purchase Facility

Currently, the MPC asset purchase facility vote stands at 0-1-8, and economists are expecting no changes soon. However, if there are two further votes to end the program (let’s say, from Dave and Saunders), this would be a hint that contractionary policy is coming up sooner than we anticipated. 

This will spread hawkish sentiments in the market and drive sharp bullish trends in the GBP/USD pair. Conversely, if the vote stands at 0-1-8 or 0-0-9, it will be considered a dovish policy and trigger a bearish trend. 

Official Bank Rate – The Bank of England is highly anticipated to keep its interest rate unchanged at 0.10%. Therefore, Sterling can exhibit a slight bullish bias versus the U.S. dollar.

Major Fundamentals Impacting Cable (GBP/USD) – Coronavirus Concerns Weigh

At a particular time, the GBP/USD is trading at 1.3908 and consolidating in the range between 1.3873 – 1.3909. Cable’s bearish bias could also be attributed to the pace of spreading Delta covid strain in the UK In contrast, the latest optimism over the Brexit matter is considered essential fundamentals, keeping the lid on any additional losses in the GBP/USD. 

Despite the geopolitical tussles and coronavirus outbreak worldwide, the market trading sentiment extended its previous positive performance and remained well bid on the day. However, the hopes over U.S. President Joe Biden’s infrastructure spending passage played a significant role in supporting the market trading mood.

GBP/USD tapering caution – ponder Covid fears and US nonfarm payrolls

Reportedly, the US policymakers made progress on the stimulus talks. It raised hopes over the US economic recovery and contributed to the gains in market trading sentiment. Besides this, the hawkish remarks from the US Federal Reserve add further pressure on the GBP/USD pair.

The Fed Vice Chair Richard Clarida said the condition for an interest rate hike is expected to be reached in late 2022. The market is setting the stage for a move in early 2023.

He further indicated that the Fed may move to taper bond buying later this year or early next, depending on how the labor market performs. However, the prevailing bullish bias surrounding the market sentiment failed to provide any solid support for the GBP/USD currency pair. 

At the USD front, the broad-based U.S. dollar extended its early-day bullish performance. It remained well bid on the day as investors are cheering the hawkish remarks from the US Federal Reserve. Conversely, the overall market upbeat mood is considered significant fundamentals supporting the safe-haven U.S. dollar. Therefore, the upticks in the US dollar kept the GBP/USD currency pair under pressure. 

Later today, the investors will keep their eyes on the BOE Monetary Policy Report, US Jobless Claims, and Fed speak. The trade/political and virus headlines will also be impacting the markets. 

GBP/USD Price Forecast – Daily Support and Resistance

GBP/USD – 4-Hour Chart

S3 1.3766

S2 1.3838

S1 1.3863

Pivot Point 1.391

R1 1.3935

R2 1.3983

R3 1.4055

GBP/USD tapering caution – Daily Technical Analysis: Ascending Triangle Support 1.3875

GBP/USD price forecast remains bullish above the 1.3875 level; however, the investors are staying out of the market ahead of major news. The traders are waiting for the Bank of England policy meeting and interest rate decision. Before this, they are trying to save their bets from shooting at once upon release of policy decision. 

On the 4-hour chart, Cable has formed a double bottom pattern supporting it around 1.3785. At the same level, the upward channel is also extending supporting, boosting chances of a bullish trend in Sterling. 

Cable may face immediate resistance at 1.3950 and 1.3985 levels. However, the formation of descending triangle pattern is spreading fear of a bearish breakout. That’s because such kind of patterns typically breaks on the lower side. 

The 50 days EMA (exponential moving average – red line) will be extending an immediate hurdle at the 1.3915 level. Bullish crossover above 50 EMA can lead the GBP/USD price towards 1.3985.

Since the leading indicator, Stochastic RSI is trading at 18.66, and it’s coming out of the oversold zone. The odds of a bullish reversal are solid.  

The Forex trading market participants may buy above 1.3875 to target the $1.3985 on Thursday. Conversely, sell-stop can be placed below the $1.3860 level to target 1.3800 and 1.3737 today. All the best!

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