The disappointment that the Bank of England did not announce its monetary policy tightening last week continues to put pressure on all GBP pairs without exception. In the case of the GBP/USD, it fell to the 1.3424 support level, its lowest in a month, before settling around the 1.3485 level as of this writing. Last Thursday's session and the timing of the Bank of England announcement was disastrous for the GBP/USD currency pair, as it plunged nearly 200 pips in one day. The Bank of England's Monetary Policy Committee voted 7-2 to keep the interest rate unchanged at 0.1%. The market had expected a 6-3 vote. Commenting on the bank's decisions, Andrew Goodwin, chief UK economist at Oxford Economics said: “The BoE's decision to keep monetary policy unchanged surprised the markets. But it was in line with our expectations and guidance from the previous MPC who wanted to see evidence regarding the impact of the end of the vacation scheme before the outing. We strongly prefer an increase in interest rates in February compared to December."
Investors had been expecting the bank rate to rise in November after paying scant attention to the September announcement, which made clear the Bank of England's desire to clarify the employment situation before any decision to begin scaling back support to the economy through rate cuts in 2020.
The BoE is trying to understand the impact the end of September will have on overall employment before any rate changes are made, but that data won't start to be available until at least December and much of it will only come after that, in January and February. BoE policy makers were reluctant to begin reversing the cuts that raised the bank rate from 0.75% to 0.10% last year without first knowing that employment and labor market levels had exceeded the withdrawal of support from the Treasury in September. This has always ruled out a November rate hike and made December, if not February 2022 or some other time after that, the most likely candidates.
US non-farm payrolls for October exceeded the expected 425K jobs after the US economy created 531,000 new jobs. Average hourly earnings for the month (year-on-year) growth also beat expectations of 4.8% with 4.9%, while the unemployment rate fell to 4.6% from 4.8% in September, beating expectations of 4.7%. Prior to that, US Initial Jobless Claims beat expectations at 277K, coming in at 269K. ISM Manufacturing and Services PMIs, as well as the change in ADP employment for the past months, beat expectations.
In the near term and according to the performance of the hourly chart, it appears that the GBP/USD is trading within an ascending channel formation. However, the currency pair recently bounced off a major support level to recover from oversold levels. Therefore, the bulls are looking to extend the current rebound towards 1.2527 or higher to 1.3561. On the other hand, the bears will look to ride the current downtrend by targeting profits at around 1.3460 or lower at 1.3425.
In the long term and according to the performance on the daily chart, it appears that the GBP/USD currency pair is trading within the formation of a sharp bearish channel. As a result, the pair has approached the oversold level of the 14-day RSI. Therefore, the bears will look to extend the current downward movement towards 1.3332 or lower to 1.3171. On the other hand, the bulls will target long-term profits at around 1.3646 or higher at 1.3802.