GBP/USD tumbles toward the 20-day SMA after Fed, BoE
The GBP/USD dropped sharply on Thursday, mainly due to a stronger U.S. Dollar at critical times for currency markets, following decisions from the Federal Reserve, the European Central Bank and the Bank of England.
As expected, the Fed, the ECB and the BoE raised key interest rates by 50 basis points, amid high inflation. There were no surprises there. At the Fed, Chair Powell maintained a somewhat hawkish tone, which, together with the macroeconomic projections, seem to forecast higher interest rates for a longer time than previously anticipated. The dollar fell initially but then reversed and strengthened during Powell's comments. On Thursday the appreciation took another magnitude, with the added bonus of risk aversion across financial markets. Main Wall Street's indexes fell by more than 2% on worries about the global growth outlook at times of monetary tightening.
Those fears about growth are more significant in the United Kingdom. The outlook led two Bank of England's Monetary Policy Committee members to vote against raising interest rates. The other seven members voted for a hike. Two votes for "no change" were the surprise, that weighed on GBP. The pound weakened further following the European Central Bank meeting.
U.S. economic data released on Thursday was mixed. Friday will be the turn of the PMIs across the world, the first numbers of activity during December. Poor readings may fuel risk aversion, which would favor the dollar against the pound.
The GBP/USD uptrend is still on, but it has lost momentum. Thursday's reversal is a first sign of a potential top around 1.2450. The mentioned area capped the upside during the last three trading days. The decline extended to 1.2156, slightly above the 20 and 200-day Simple Moving Average. A consolidation below 1.2100 should point to more losses in the short term.
In order to recover bullish strength, GBP/USD needs to break above the 1.2320 area. Such a scenario would again expose the critical resistance at 1.2450. A daily close above this last level could anticipate the resumption of the rally.
As expected, the Fed, the ECB and the BoE raised key interest rates by 50 basis points, amid high inflation. There were no surprises there. At the Fed, Chair Powell maintained a somewhat hawkish tone, which, together with the macroeconomic projections, seem to forecast higher interest rates for a longer time than previously anticipated. The dollar fell initially but then reversed and strengthened during Powell's comments. On Thursday the appreciation took another magnitude, with the added bonus of risk aversion across financial markets. Main Wall Street's indexes fell by more than 2% on worries about the global growth outlook at times of monetary tightening.
Those fears about growth are more significant in the United Kingdom. The outlook led two Bank of England's Monetary Policy Committee members to vote against raising interest rates. The other seven members voted for a hike. Two votes for "no change" were the surprise, that weighed on GBP. The pound weakened further following the European Central Bank meeting.
U.S. economic data released on Thursday was mixed. Friday will be the turn of the PMIs across the world, the first numbers of activity during December. Poor readings may fuel risk aversion, which would favor the dollar against the pound.
The GBP/USD uptrend is still on, but it has lost momentum. Thursday's reversal is a first sign of a potential top around 1.2450. The mentioned area capped the upside during the last three trading days. The decline extended to 1.2156, slightly above the 20 and 200-day Simple Moving Average. A consolidation below 1.2100 should point to more losses in the short term.
In order to recover bullish strength, GBP/USD needs to break above the 1.2320 area. Such a scenario would again expose the critical resistance at 1.2450. A daily close above this last level could anticipate the resumption of the rally.