GBP/USD: Bulls flirt with 1.3700 as BOE, Fed signals join Brexit woes
- GBP/USD struggles for a clear direction after a positive start to the week.
- BOE’s Bailey cites growth fears, hints that a rate hike will precede tapering.
- Fed’s Powell highlights inflation concerns to show readiness for tapering.
- Merkel's successor held Brexit responsible for UK’s fuel, chicken shortage.
GBP/USD retreats to 1.3700 amid Tuesday’s Asian session, after a positive week-start. The cable pair reacts to the recently mixed comments from the central bank leaders of the UK and the US amid the Brexit-led fuel and chicken crisis in England.
Bank of England (BOE) Governor Andrew Bailey spoke during the Society of Professional Economists Annual Dinner while saying, “Monetary policy response, if needed to make one, to the inflation pressure should involve interest rates and not QE.” The policymakers add, “The rate of recovery has slowed over recent months, and that slowing is continuing. Relative to the fourth quarter of 2019, on the latest data to July, the level of GDP was 3.5% lower.”
On the other hand, Fed Chairman Jerome Powell’s prepared remarks for today’s testimony cited inflation and employment concerns while hinting at the tapering. The policymaker said, per Reuters, “We would certainly respond and use our tools to ensure that inflation runs at levels that are consistent with our goal."
Elsewhere, The Independent came out with the news quoting Germany’s Social Democratic Party’s (SDP) Olaf Scholz, the man set to replace Angela Merkel as German chancellor, per the news, while showing further hardships over the UK’s food and fuel crisis. “We worked very hard to convince the British not to leave the union. Now they decided different and I hope they will manage the problems coming from that,” said Scholz per the news.
It’s worth noting that the UK’s National Health Services (NHS) recently warned over the shortage of staff, indirectly affecting the covid conditions, should the petrol crisis be left unsolved. That said, UK PM Boris Johnson and his policymakers have agreed to use the military for solving the issue while the British industry body also sounds hopeful of overcoming the bad conditions. On a covid front, Reuters cites 37,960 new COVID-19 cases on Monday and 40 more deaths within 28 days of a positive test versus 32,417 cases recorded on Sunday and 58 deaths.
Other than the central bank and Brexit, chatters around Evergrande and uncertainty over the US debt ceiling challenges the previous risk-on mood, challenging the S&P 500 Futures by the press time. The same should recall the pair sellers as the US Dollar Index (DXY) tracked the US 10-year Treasury yields to the north the previous day.
Looking forward, updates over the Brexit and Fed Chair Powell’s additional comments during the testimony will be the key for GBP/USD traders.
Technical analysis
Although a two-month-old ascending trend line restricts short-term GBP/USD downside near 1.3635, a daily closing beyond the 200-day EMA level of 1.3727 becomes necessary for the bulls to retake controls.