British Pound Recalibrates After BoE Decision and Risk Assets Rally. Where to for GBP/USD?

British Pound, GBP/USD, BoE, Fed, BoJ, Nikkei 225, ASX 200 - Talking Points

• The British Pound softened after there were no BoE votes for a 0.50% hike
• APAC equities were mixed with risk assets holding onto overnight gains
• With central bank decisions done with, will GBP/USD make some headway?

The British Pound has steadied in the aftermath of the Bank of England raising their key interest rate by 25 basis points (bps) yesterday. It initially sold off after the decision as the market was anticipating some votes for a 50 basis-point hike, which did not materialise. It found some support once the dust settled.

Currencies in Asia maintained the moves seen into the North American close as markets took stock in a week of central banks action. Risk assets held their gains with commodity markets recovering from recent pandemonium.

The positive lead from Wall Street saw Asian equities mixed with Chinese and Hong Kong stocks weakening a touch after epic rallies this week.

Australia’s ASX 200 and Japan’s Nikkei 225 were up on the day, although those moves were attributed to higher commodities and a weaker Yen respectively.

The Bank of Japan left rates unchanged as expected today.

US inflation is starting to creak higher in the aftermath of Federal Reserve’s decision to raise rates by 25 bps this week. Rightly or wrongly, calls for 50 bps were abandoned at the outset of the Ukraine war.

The market appears to be losing faith in the Fed’s ability to rein in inflation. The 2-year breakeven inflation rate is 200 bps higher than this time last year at 4.7%.

With nominal 2-year Treasuries yields near 1.95%, this has real yields deep in negative territory. This is problematic for bond investors and those relying on interest income in retirement.

Later today, US President Joe Biden is expected to have talks with Chinese President Xi Jinping. The Russian situation is clearly on the agenda.

Observers have noted that there is likely to be a delicate approach from both sides. China does not want to be seen to be bending to the will of the US, while at the same time, would like to ensure that their domestic growth is not stymied by global factors.

The US on the other hand, would like to ensure that sanctions against Russia are not fruitless and would like reassurances that China will not allow them a back door to global payments.

The full economic calendar can be viewed here.

GBP/USD Technical Analysis

Sterling has held its ground after a recovery rally on Wednesday as it tried to piece above a recent high of 1.31947.

That level may offer further resistance, as well as the pivot point at 1.32727 that coincides with the 21-day simple moving average (SMA).

On the downside, support could be at recent low of 1.29999 and below there, there could be support at a descending trend line which sits just above the October 2021 low of 1.28538.

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter