The Pound Sterling losses ground against the US Dollar even though the Bank of England lifted rates by 0.50%.
US Retail Sales for November disappointed, though they showed the effects of the Federal Reserve policy.
GBP/USD: The dip towards the confluence of the 20/200-DMAs, could pave the way for a re-test of 1.2400
The Pound Sterling (GBP) failed to gain traction amidst a Bank of England (BoE) 50 bps rate hike, though risk aversion maintains the US Dollar (USD) bid, after hitting six-month lows around 103.448, per the US Dollar Index (DXY). Mixed economic data released by the United States (US) and the aftermath of further rate hikes by the Federal Reserve (Fed) weighed on the GBP. At the time of writing, the GBP/USD is trading at 1.2160, down more than 2%.
Dovish hike by the Bank of England weighed on the GBP/USD
US equities dwindled after the Fed’s decision, which opted to slow the rate increases but updated its terminal rate. The so-called dot plot, where policymakers project the Federal Funds rate (FFR) in the future, was revised from September’s 4.6% to 5.1%, catching investors off guard, as most analysts estimated an adjustment to 4.9%.
Data-wise, the US economy experienced a setback in November as Retail Sales unexpectedly contracted, down 0.6% MoM compared to the anticipated -0.1%. Meanwhile, Initial Jobless Claims rose by 211K despite estimates of 230K, revealing the strength and robustness of today’s labor market acknowledged by Fed Chair Powell during his Wednesday press conference.
Earlier, the Philadelphia and New York Business Indexes reported disappointing figures, with the former sliding 13.8 points below expectations while the latter dropped 11.2, further away from its predicted contraction rate of 1%.
In a move widely expected by analysts, the Bank of England hiked interest rates to 3.50%, an increase of 50 basis points and the highest rate since the financial crisis. However, the decision was not unanimous; two members (Sylvana Tenreyro and Swati Dhingra) opted for no change, while Catherine Mann voted for an even higher increase of 75bps. The BoE said that further rate increases might be required to achieve the bank’s 2% goal. They added, “if the outlook suggested more persistent inflationary pressures, it would respond forcefully, as necessary.”
GBP/USD Price Analysis: Technical outlook
The GBP/USD remains upward biased even though Thursday’s session is witnessing a 240 pip fall, spurred by a perceived “dovish” hike by the Bank of England. Nevertheless, it should be said that the GBP/USD rally from around 1.1700 to 1.2446 resulted from overall US Dollar (USD) weakness. However, the confluence of the 20 and 200-day Exponential Moving Average (EMA) at around 1.2117/15 could halt the downfall if buyers stepped in around the latter.
Although falling, the Relative Strength Index (RSI) is still in bullish territory, while the Rate of Change (Roc) suggests that selling pressure is increasing.
Therefore, the GBP/USD first support would be the 1.2115/17 area, followed by 1.2100. On the flip side, the GBP/USD first resistance would be the 1.2200 mark, followed by the December 5 daily high at 1.2344.
EUR/USD challenges 1.0600 on persistent US Dollar strength
EUR/USD has reversed its direction and dropped towards 1.0600 after having touched a fresh multi-month high above 1.0700 on ECB President Lagarde’s hawkish comments. The negative shift witnessed in risk sentiment provides a boost to US Dollar, weighing on the pair.
GBP/USD slumps below 1.2200 as US Dollar rally picks up steam
GBP/USD stays under constant bearish pressure and trades around 1.2160, posting fresh weekly lows on a broad run to safety. Following the BOE’s dovish rate hike, the renewed US Dollar strength amid risk aversion forces the pair to stay on the back foot.
Gold plunges towards $1,770 amid risk aversion
XAU/UD turned bearish in the near term, holds near a strong static resistance area at around $1,765.00. The ECB and the BOE hiked their benchmark rates by 50 bps as expected.