- The British pound traded erratically ahead of the Bank of England decision, with markets focused on forward guidance rather than the expected rate cut.
- Price action suggests dollar flows remain the primary driver, with GBP showing relative resilience.
The British pound has been all over the place during the session on Wednesday, which is not a surprise considering that we have the Bank of England interest rate decision coming out on Thursday. With that being the case, I think it's very difficult to get overly aggressive here. But I also recognize that market participants will continue to perhaps extract a little bit of momentum from the idea that although there's probably going to be a rate cut coming out of London, it will be the statement and the press conference that will drive everything.
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After all, people will want to know the forward guidance. It was interesting because the British pound sold pretty early during the day, but as soon as the Americans came on board, they started buying it back up, shorting the US dollar. This has been the pattern for a while, where the US dollar loses strength once the Americans start trading it. Europeans seem to want it, and at this point, I think there isn't too much to read from this chart.
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Going into the central bank decision, other than people are nervous. The 1.34 level has been like a significant magnet for price. And if we can break above the 1.35 level, then I think we clear resistance and start going much higher. If we turn around and fall from here, then we go looking at the 200-day EMA.
All things being equal, I do think that the British pound probably performs better than many other currencies against the dollar, be it up or down. While England does have an interest rate cut in its short-term future, the reality is that inflation has been a little sticky, so we'll have to wait and see how that plays out. But this may be very much like about a year and a half ago, when, while the US dollar strengthened and the British pound fell, it didn't fall as much as other currencies.
And then when the US dollar started weakening, the British pound was a huge winner. With all that being said, I think we see more of that. I think the US dollar will determine where we go next, not necessarily the British pound, but the British pound will outperform others. And therefore, I watch this chart quite closely.
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