The pound moved towards 1.3400 after the Federal Reserve held interest rates unchanged without signalling an imminent shift towards cuts. Traders now look to the Bank of England, where the vote split and Governor Andrew Bailey's comments are expected to drive sterling through the end of the week.
GBP/USD moved towards the 1.3400 area following yesterday's Federal Reserve meeting. The Fed kept interest rates unchanged, as expected, but gave the market no clear signal of an imminent turn towards rate cuts, keeping a cautious approach to future monetary policy.
The dollar failed to gain fresh momentum despite that cautious tone. That allowed the British currency to partially recover its recent losses.
Bank of England decision takes over as sterling's driver
Market attention has shifted almost entirely to the Bank of England meeting, whose decision is expected to be the main driver for sterling through the end of the week. Investors do not expect a change in interest rates here either, so the weight falls on the Monetary Policy Committee's vote split, the accompanying statement and comments from Governor Andrew Bailey.
Any signals about the timing of potential monetary policy easing could trigger notable volatility in the pound. The rate decision arrives at 14:00 (GMT+3), Bailey speaks at 14:30, and US initial jobless claims follow at 15:30.
GBP/USD rebounds from 1.3270
Buyers rebounded from the 1.3270 support level and drove a sharp daily rally, forming a bullish engulfing pattern. Technical analysis of the pair points to the possibility of further gains towards 1.3440–1.3480 if the 1.3270–1.3300 range becomes established as support.
A decisive move below yesterday's low, however, could trigger a renewed decline towards 1.3180–1.3220.
EUR/GBP recovers before German and Spanish data
EUR/GBP is showing signs of recovery after forming a bullish harami pattern on the daily timeframe, and the pair could extend its advance towards 0.8600–0.8620 if market participants are disappointed by today's Bank of England decision.
Euro traders also face a run of releases. Markets will focus on preliminary inflation and GDP data from Germany, as well as GDP and inflation figures from Spain, with stronger numbers supporting the euro and weaker ones reinforcing expectations of further European Central Bank easing.
The bullish case for EUR/GBP would be invalidated by a decisive break below the 0.8540–0.8560 support area.
Source: ActionForex
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