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Pound breaking on rising BoE rate hike bets

Fawad Razaqzada Fawad Razaqzada 19/10/2021
Pound breaking on rising BoE rate hike bets Pound breaking on rising BoE rate hike bets
Pound breaking on rising BoE rate hike bets Fawad Razaqzada
Pound crosses are continuing to shine brightly today as investors increase their expectations over an imminent interest rate hike in the UK. Governor Andrew Bailey warned the Bank of England "will have to act" over rising inflation at the weekend. Investors have bought the pound aggressively this week, suggesting they expect interest rates to rise very soon. Although Baily has acknowledged that monetary policy cannot solve supply-side problems, the BoE must try and tame inflation nonetheless, if policymakers see a risk “particularly to medium-term inflation and to medium-term inflation expectations."

Thanks to the renewed bullish momentum, traders are buying the pound across the board. I reckon sterling’s best gains will be observed against currencies where the central bank is still quite dovish, such as the yen and franc. Although the GBP/JPY has already risen sharply, the GBP/CHF hasn’t made its move just yet and it appears to be just warming up. Like the Bank of Japan, the Swiss National Bank is nowhere near ready to tighten monetary policy. If anything, it continues to warn that the franc remains overvalued.

GBPCHF

The GBP/CHF has been coiling for several months after the previous rally came to a halt in March. Now it appears like it is gearing up for another breakout, as price action continues to fail the bears (e.g. Monday’s inverted hammer saw no downside follow-through).
 
Meanwhile, the GBP/JPY last week broke above long-term resistance around 156.00 as per the weekly chart:

GBP/JPY

The Guppy could now extend its rally significantly, but with the yen extended on the downside across the board, a bit of consolidation first would not be a bad thing.

Another pound cross catching my attention is the Chunnel. The EUR/GBP has broken cleanly below the April low at 0.8470ish, potentially paving the way for a deeper drop in the weeks to come. This wouldn’t come as major surprise given the growing disparity between UK and Eurozone monetary policy:

EURGBP

Finally, let’s take a look at the GBP/USD. The cable has broken its bearish trend line, but with the Fed also being hawkish, I wouldn’t be surprised if rates run into some resistance around 1.3850 area, where the 200-day average converges with the prior breakdown zone:
 
cable 
So, everything considered, the pound’s potential strength is going to come against weaker currencies and for me GBP/CHF could be the one to watch out for.

Source for all charts: ThinkMarkets and TradingView.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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