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GBP/USD Recovers From a Multi-Month Low On a Weaker USD, But Lacks Momentum Beyond 1.2400
On Monday, GBP/USD obtains some traction and moves away from a three-month low. Positive risk sentiment is viewed as undermining the USD and providing some support for the pair. Declining odds of more aggressive BoE rate increases may limit the GBP's potential for further gains.
The GBP/USD pair receives some purchasing interest on Monday, reversing a portion of Friday's decline to the 1.2380-1.2375 region, or its lowest level since June. Spot prices presently trade around the 12400 round figure and draw some support from a softer US Dollar (USD), though any meaningful appreciating move still seems elusive.
A broadly optimistic outlook for US equity futures does not help the safe-haven dollar capitalise on its longest winning streak since 2014. The USD decline may also be attributable to repositioning trade advance of this week's key central bank event risk – the outcome of the highly anticipated two-day FOMC monetary policy meeting commencing on Tuesday. The Fed is scheduled to announce its decision on Wednesday, and it is widely anticipated that it will maintain current interest rates.
The markets continue to price in the possibility of an additional 25 basis point increase in November or December. Consequently, the market will concentrate on the accompanying policy statement and Fed Chair Jerome Powell's remarks at the press conference following the meeting. The Fed's future rate-hike path will play a key role in determining the near-term USD price dynamics and will help investors determine the next leg of the GBP/USD pair's directional movement.
In the interim, decreasing odds of a more aggressive policy tightening by the Bank of England (BoE) could discourage traders from placing aggressive bullish wagers on the British Pound (GBP). In fact, according to BoE Governor Andrew Bailey, the central bank is "much closer" to terminating its string of interest rate hikes. This, along with resurgent recession concerns and indications of a softening UK labour market, could put pressure on the BoE to pause its rate-hiking cycle.
In the absence of any market-moving economic releases on Monday, the aforementioned fundamental context necessitates a cautious approach to any further recovery. Before confirming that the GBP/USD pair has formed a near-term bottom, it will be prudent to wait for a significant follow-through purchase.
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