Pound Traders Eye BoE’s Interest Rate Decision

Sep 23 21, 09:15 GMT

Today in the late European session we get BoE’s interest rate decision, and the bank is widely expected to remain on hold at 0.10%, as GBP OIS imply a probability of 98.93% for such a scenario to materialize and is also expected to keep its QE program unchanged. It should be noted that latest data released, showed that the employment market tightened in July and most importantly the UK CPI rates accelerated substantially, with the headline rate reaching an over nine year high at 3.2% yoy for August. It should be noted that BoE Governor Bailey in an interview early August had hinted that the bank’s policymakers are evenly split in regards of tightening its policy or not. The dilemma for BoE is clear as should the bank tighten its monetary policy too early, it may undermine the recovery of the UK economy. If it tightens too late it may allow for inflationary pressures to be ingrained in the UK economy. Should there be any hints of an earlier tightening of the bank’s monetary policy we may see the pound gaining.

GBP retreated against the USD yesterday, yet the 1.3600 (S1) support line held its ground. We tend to maintain a bearish outlook for cable as long as it remains below the downward trendline incepted since the 14th of September. Please note that the RSI indicator is between the readings of 50 and 30 implying that the bears may have the advantage. Should the bears actually remain in charge we may see the pair breaking the 1.3600 (S1) support line, which mind you was also tested on the 20th of August yet withstood the downward pressure. Should the bulls take over, we may see GBP/USD breaking the prementioned downward trendline and aim if not breach the 1.3750 (R1) resistance line.

USD gains on Fed’s interest rate decision

USD rose yesterday against a number of its counterparts reaching levels not seen in a month after FOMC’s interest rate decision as the bank seems to prepare to start tightening its monetary policy. The Fed left policy settings intact keeping rates at 0.0-0.25%, and asset purchases at $120 billion per month, and refrained from announcing the start of a possible taper yet in its statement the bank said that “a moderation in the pace of asset purchases may soon be warranted”. In the opening statement of his press conference Fed Chairman Powell outlined the timeline of a possible tapering with an end date being “around the middle of next year”, while half of FOMC participants forecast that conditions to start hiking rates seem to be reached by the end of 2022. Overall, the interest rate decision reflected the improvement of economic conditions in the US and well messaged the bank’s intentions.

The USD Index rose yesterday breaking the 93.20 (S1) resistance line, now turned to support. We tend to see slight bullish tendencies still being present despite the correction lower during today’s European session, as the RSI indicator, below our 4-hour chart is between the readings of 50 and 70. Should the buying interest be actually maintained, we may see the index rising and breaking the 93.70 (R1) resistance line. Should the correction lower be extended and a selling interest be displayed for the Dollar, we may see the index breaking below the 93.20 (S1) support line and aim for the 92.85 (S2) level.

Other economic highlights today and the following Asian session:

Today we highlight the release of the preliminary PMI figures from the Eurozone, UK and the US while we also note the interest rate decisions of SNB from Switzerland which is expected to remain on hold, Norgesbank from Norway which could proceed with its first post-pandemic rate hike and CBT from Turkey which is expected to remain on hold. In the American session, Canada’s retail sales for July are to be released, while in tomorrow’s Asian session we get from Japan the inflation rates for August as well as the preliminary Jibun bank manufacturing PMI for September.

USD Index H4 Chart