- GBP/USD has been pressured as Brexit talks remain stuck and inflation is low.
- The focus shifts to the Federal Reserve’s decision later today.
- Wednesday’s four-hour chart is pointing to fresh gains.
“We should not be spending time pretending to negotiate” – said Michel Barnier, the EU chief Brexit negotiator. His downplaying of the UK’s lack of new proposals to solve the Irish backstop issue has weighed on the pound. Earlier this week, European Commission President Jean-Claude Juncker and Barnier’s address to the European Parliament – just two days after they met UK prime minister Boris Johnson – shows that nothing has changed – except for the clock ticking down to Brexit.
Nevertheless, sterling remains well-above the levels seen early in the month – before the opposition passed the bill to prevent a no-deal exit. With 43 days left until the current deadline, investors are still cautiously optimistic that a hard exit will be avoided – an extension of Article 50 to next year.
Mark Carney, Governor of the Bank of England, may also see his exit postponed. The Financial Times reports that the government may ask Carney to extend his term once again – the third delay of his retirement – to after Brexit. The central banker is set to retire at the end of 2019 and no successor has been named so far.
The BOE is set to leave its interest rates unchanged on Thursday. While wage growth has accelerated and credit is loose, the “Old Lady” has refrained from raising rates due to uncertainty related to Brexit – and will likely do that again. Moreover, fresh inflation figures for August have shown that the Consumer Price Index (CPI) has slowed down to an annual growth rate of 1.7% – significantly below 2.1% reported in July and below expectations.
Another central bank makes its decision before the BOE – the US Federal Reserve – and the impact on GBP/USD will likely be significant. The Fed is set to cut rates for the second time in a row while signaling a pause in the next decision or two. While investment has dropped and the global economy slowed, salaries are rising quickly, trade tensions have cooled – and inflation has picked up. Bond markets are reflecting doubts about today’s rate cut.
GBP/USD Technical Analysis – Bullish
GBP/USD has been enjoying higher highs and higher lows – a bullish sign. The currency pair is also trading above the 50, 100, and 200 Simple Moving Averages (SMAs). Momentum is to the upside and the Relative Strength Index (RSI) has dropped below 70 – thus not reflecting overbought conditions anymore.
Overall, bulls are in control.
Resistance awaits at 1.2525 – the recent seven-week high. IT is followed by 1.2580, which was a high point in early July. Further up, the next cap is 1.2650, which dates back to June.
Looking down, support awaits at 1.2390, which has been the low point this week and a clear separator of ranges. Next, we find 1.2375, which was a swing low last month, and then by 1.2230, that was another swing low earlier this month.
Equities Contributor: FXStreet
Source: Equities News