Fear has come — inflation, Fed policies, China’s faltering economy, and even Russian military action. This helped the safe-haven Greenback and helped fix the Pound. With the emphasis now on the Fed’s conclusion,
This Week’s GBP/USD: Fed Anxiety Resurfaces
The safe-haven US currency gained from fears about the imminent Federal Reserve decision. Leading market figures like JP Morgan CEO Jamie Dimon and Goldman Sachs stepped in to fill the Fed’s absence and voiced their support for action to combat inflation.
In March, markets were frightened by speculation about an end to reductions, a double-dose rate hike, and an endless sequence of rate hikes. Fears of high inflation pushed bond yields to their highest level since February 2020, making the currency more appealing.
Concerns about China contributed to the pessimism. Retail sales slumped, and despite a zero-COVID policy, there were more coronavirus outbreaks. Tensions between Russia and Ukraine have grown.
In November, the UK’s jobless rate fell to 4.1%, exceeding predictions. In December, its inflation was 5.4% YoY, above the expected 5.2%. Governor Andrew Bailey of the BoE added fuel to the flames.
Positive British statistics kept Sterling’s bid, but doubts about Prime Minister Boris Johnson’s political future tempered gains.
The PM is purportedly conspiring against him as Downing Street encourages the people to wait for the outcome of an official probe. Unfortunately, polls backfire on these attempts.
The good news from the UK is that COVID instances are falling across the country, reducing hospitalizations and saving money.
UK Events: Johnson’s Precarious Situation
Who wants the job? It’s a good question for Pound traders. The current PM looks to be losing public and party support.
The ideal scenario for Sterling would be a fast Tory leadership race, with Chancellor Rishi Sunak taking the top post. He is recognized as a reliable economic advisor.
A long-running leadership race ended by Foreign Secretary Liz Truss or another right-leaning contender would be unfavorable.
Sterling would fall if Johnson lost his vote of confidence or resigned, but it might rebound swiftly if the report became genuine. It may subsequently enjoy the victorious candidate’s celebration.
Ultimately, the political turmoil may have boosted the Pound.
After a week of high-profile announcements, the UK calendar is sparse again, with just Markit’s January preliminary PMIs sticking out. Notably, services are the UK’s largest industry. If the Pound fell below 50, it would strain the Pound.
US Events: The Federal Reserve Is In The Spotlight
The last week of January will be dominated by the first Fed ruling of 2022. On the other hand, the end of the Fed’s bond-buying program in March means a rate rise in March.
Some believe increased inflation may prompt Jerome Powell and his colleagues to stop buying in January.
However, sluggish retail sales and market uncertainties may prevent the Fed from acting decisively. One month after declaring its intention to taper, the bank’s reputation would be boosted by a steady hand.
If Powell avoids a more aggressive stance, the Fed will boost equities and devalue the currency.
Markit’s pre-Fed PMIs are interesting. Has inflation dampened company confidence, or is the economy still booming? December’s results were about 57 points, indicating growth.
Another key indicator, consumer confidence, might influence markets if it matches the University of Michigan’s and declines.
The biggest event after the Fed is the first publication of Q4 GDP for 2021. The Delta COVID version slowed growth in the third quarter, but accelerated growth in the fourth. Forecasts vary, and the first publication tends to surprise markets.
Contrary to prior announcements, December Durable Goods Orders are released with GDP, not earlier. So the final top-tier statistic affecting growth was retail sales, which fell 2.3% in December 2021. Lowering expectations may lead to a positive surprise.
While the Fed’s decision usually dominates the week, a big GDP beat or miss might steal the show. In any event, it will likely eclipse other releases like the Durables and jobless claims.
Finally, the Fed’s favored inflation gauge is due Friday. It was 4.7% YoY in November, much higher than the bank’s aim of 2%. It certainly topped 5% in December, giving the Fed a dirty eye in 2021.
Even if COVID isn’t restricted because of the busy economic calendar, the continued burden on hospitals and consumer fear of sickness has an economic impact. Falls in instances would be encouraged.
Analysis Of The GBP/USD
GBP/USD CHART Source: Tradingview.com
The Pound/Dollar has corrected from its highs. However, the reality is more complex. A daily chart with upward momentum and pricing above the 50-day and 100-day SMAs indicates a rally.
But GBP/USD hasn’t beaten a downtrend barrier or lost sharp uptrend support. An inability to secure just above the 200-day SMA might also trigger a halt. Overall, the bulls lead by a little margin.
The pair met resistance at 1.3560 in October and mid-January. After a recent role in both directions, the round 1.37 line is now a substantial cap. 2022, 1.3750 is a key upside target. Crossing that line would lead to 1.3840.
A dip between January and October found support around 1.3570. It’s followed by 1.3495, a year-early swing low, then 1.3430 and 1.3380.