GBP/USD Technical Analysis: Eyeing 1.40 Resistance

Mahmoud Abdallah

The British pound continues to rise, with only one loss out of the past five sessions. The GBP/USD rose to the resistance level of 1.3835, its highest in a month, before settling around the 1.3800 level as of this writing. UK inflation for the month of September was within expectations, with CPI coming in at 3.1% and core CPI at 2.9% so the GBP's reaction was muted.

The question now in the Forex market is: will November bring in the Fed's purchase cuts and the Bank of England's rate increase?

The BoE has fully pressed in favor of a rate hike, and rates have joined the market, pricing in a 90% chance that the BoE will raise rates by 0.25% at its next policy meeting on November 4. BoE Governor Andrew Bailey said at the weekend that the bank would have to take action against inflation. Bailey reiterated that inflation was temporary but acknowledged that the recent rise in energy prices means that the rise in inflation will be larger and will last longer than the Bank expected.

However, there are some MPC members who fear that the BoE is moving too quickly to tighten monetary policy. In this regard, MPC member Silvana Tenrio said last week that a rate hike would be "self-defeating" because it was unclear how long inflation would continue to rise. Other MPC members noted that a rate hike could stifle the recovery and become a policy mistake if the central bank is forced to change interest rates within a few months from now.

The Fed will likely cut back in November, which would mean curtailing $120 billion in monthly bond purchases. The program was introduced to mitigate the repercussions of the COVID-19 epidemic, and Powell & Co. sees that the US economy can slowly stop this support, with the bond purchases expected to end around July 22, 22.

Once tapering is finally done, the next element on the Fed's board will be rate policy. Policymakers have to contend with persistently high inflation coupled with a potential slowdown in growth, which makes the timing of a rate hike a difficult task. A rate hike is a useful tool for containing inflation, but it can also cool the labor market and reduce job gains. The Fed is expected to raise interest rates in the second half of 2022 or possibly 2023.

Under pressure from rising infections and anxious health experts, the British government on Wednesday urged millions of people to get their booster vaccine doses but resisted calls to reimpose coronavirus restrictions such as the mandatory wearing of masks. For his part, Health Minister Sajid Javid said that the government "will remain vigilant, preparing for all eventualities", but will not launch "Plan B" to restore restrictions imposed on daily life.

Britain relies heavily on vaccines to keep the virus at bay during the fall and winter. Nearly 80% of people aged 12 or over in the UK have received two doses of the vaccine, and a booster dose is being given to millions, including everyone over 50.

Technical analysis of the pair

The process of exiting the bearish channel of the GBP/USD pair is going at a good pace, and after the recent gains, the bulls are heading towards the 1.4000 psychological resistance. On the other hand, for the bears to regain control of the performance, they have to move towards the support level at 1.3590 again. It is clear that an ascending channel is forming.

The currency pair will be affected today by the announcement of the net public sector borrowing in Britain, From the United States of America, US jobless claims, the reading of the Philadelphia Industrial Index, existing home sales and statements by some US monetary policy officials will be announced.

GBP/USD

Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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