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The British pound (GBP/USD) today refreshed its daily high near 1.2310 as it climbed towards the seven-week high marked the previous day, while the bulls held on to control ahead of the BoE's monetary policy release.
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Adding strength to the cable’s rise towards the 10-month resistance line near 1.2350 are Brexit optimism and Fed dovishness, as well as gloomy Treasury yields. UK PM Rishi Sunak’s victory in passing the Brexit bill through the House of Commons, despite the big comments from Tory rebels, seems to be supporting the pound. The Guardian reported that UK PM Rishu Sunak survived a Commons rebellion that had undermined his revised plan for post-Brexit trade in Northern Ireland, winning the vote with 22 of his own MPs voting against the deal. This has left cable buyers hoping for a hawkish BoE, especially ahead of earlier strong UK inflation data. According to fxstreet.com, UK headline CPI inflation rose to 10.4% year-on-year in February, up from previous expectations of 9.8% and 10.1%. Meanwhile, core CPI rose 6.2% compared to the previous market estimate of 5.8%. On the other hand, the US Fed has released data on market expectations for a 0.25% interest rate hike but failed to convince policymakers which caused the US dollar to slump. The reason can of course be attributed to the statement that said “some additional policy tightening may be appropriate”, compared to the previous statement that “further increases in the target range would be appropriate”.
It is important to note that comments from Jerome Powell and US Treasury Secretary Janet Yellen fueled the pessimism in the market as Powell said that officials do not see any rate cuts this year, which in turn gave the greenback some breathing room but not enough to sustain it. Further, US Treasury Secretary Janet Yellen ruled out the idea of “blanket insurance” for bank deposits. Bloomberg also recently reported news that the FDIC is delaying the bid deadline for Silicon Valley Bank (SVB). Against the above backdrop, the S&P 500 recorded a modest daily gain of 0.25% around 3,980 points after suffering its biggest daily decline in two weeks. Meanwhile, the US 10-year and 2-year Treasury yields remain depressed around 3.47% and the latest reading is 3.96%. Moving forward, Pound traders may keep an eye on the political turmoil in the UK House of Commons and the US second-tier data for additional direction while focusing on the BoE announcement.
The BoE is expected to raise their interest rates by 0.25% and this is unlikely to do much to cheer Cable traders.
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Technical Analysis
Reportedly, the two-week trend line is rising around 1.2440 at the time of writing. This is leading buyers of the GBP/USD pair towards the key resistance line from May 2022, at the latest near 1.2350. Based on data recap from the exchangerates.org.uk website, the previous day on Wednesday, March 22, 2023, the pound against the US dollar was at 1.2279.
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