Market Analysis

The hawkish interest rate guidance from BoE Greene boosts the value of the pound sterling

Amos Simanungkalit · 23 Oct 202439.8K Views

The Pound Sterling (GBP) is outperforming most of its counterparts, with the exception of the US Dollar (USD) and the Canadian Dollar (CAD), on Wednesday. This uptick is attributed to slightly hawkish interest rate comments made by Bank of England (BoE) Monetary Policy Committee member Megan Greene during a discussion with the Atlantic Council at the International Monetary Fund (IMF) meeting on Tuesday.

Greene stated, "I believe it's likely that monetary policy needs to continue tightening to achieve our inflation targets." When questioned about the potential impact of the recent decline in UK inflation on her upcoming vote regarding monetary policy in November, Greene noted that the significant drop in inflation was primarily due to volatile components and therefore should not be overemphasized.

It is important to highlight that Greene was one of four MPC members who opted to maintain interest rates at their current level in August, when the BoE reduced them by 25 basis points (bps) to 5%.

The next key event for the Pound Sterling will be a speech by BoE Governor Andrew Bailey, scheduled for 18:45 GMT. Investors are keen to hear fresh insights regarding potential monetary policy actions in November and December. In the meantime, traders are anticipating another interest rate cut in November.

From an economic perspective, market participants will focus on the flash S&P Global/CIPS Purchasing Managers Index (PMI) data for October, which is set to be released on Thursday. This report is expected to indicate modest growth in overall business activity.

Technical Analysis: The Pound Sterling remains under the key psychological barrier of 1.3000 during European trading hours. The outlook for the GBP/USD pair appears bearish, as it is currently trading below the 50-day Exponential Moving Average (EMA), situated around 1.3080.

The 14-day Relative Strength Index (RSI) is approaching 40.00, indicating that bearish momentum is in play.

To the downside, an upward-sloping trendline originating from the April 22 low of 1.2300 serves as a crucial support level for Pound Sterling bulls, located near 1.2920. A drop below this level could lead the pair toward the 200-day EMA, currently at approximately 1.2845. Conversely, on the upside, the Cable will encounter resistance near the 20-day EMA, around 1.3110.