The British pound fell a bit during the session on Thursday, before bouncing at the crucial 1.32 level.
GBP/USD
The British pound tried to recover on Thursday, breaking above the 1.33 level before turning over and dropping. That being said, we tested the 1.32 level, an area that has been important a couple of times and bounced from there. I think this is a situation where the US dollar is driving everything after all.
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The Federal Reserve on Thursday suggested that there is probably another interest rate hike between now and the end of the year, and that, of course, drove US dollar strength. At the same time, we have the British pound, which has quite a bit of strength in general, but the interest rate decision out of the Bank of England was to hold, and at the same time, there are questions about whether or not the market is going to see further hawkishness coming out of London.
Economic Indicators and Trading Range
In general, what we have seen over the last 24 hours has been CPI cooling in the United Kingdom and the claimant count change rising, so this suggests that perhaps the British situation is starting to deteriorate a little bit. I don't think this is toxic, and I certainly don't think it's terminal, but as a general rule, the British pound has fared better than most of its contemporaries against the US dollar. The fact that it is trying to recover from the 1.32 level is not a huge surprise to me.
With that being said, I like the idea of trading in this market staying within the range with the 1.32 level offering support, but if we were to break down below 1.3175 at that point, I would start selling. If we rally from here above the 1.33 level, then I would look for signs of exhaustion to start shorting.
I think this is a range-bound market for a reason, and one of the biggest reasons is simply that we don't know exactly how the mess in the Middle East is going to turn out, and we certainly don't know how inflation rises or falls after that. I think the next couple of months could be very choppy in the currency.
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