GBP/USD PRICE, NEWS AND ANALYSIS:

• GBP/USD is weakening ahead of tomorrow’s monetary policy decision by the US Federal Reserve and Thursday’s policy announcement by the Bank of England.
• The Federal Open Market Committee is expected to decide to wind down its bond-buying program but opinions are divided over whether the Bank of England will increase UK interest rates or leave them where they are.

GBP/USD TRENDING LOWER NEAR-TERM

GBP/USD is looking weak ahead of this week’s central bank meetings in the US and the UK, and it’s hard to see any near-term upside for the pair given that the markets are fully pricing in a UK rate increase of 15 basis points to 0.25% so the risk is that the Bank of England’s monetary policy committee will decide to leave rates unchanged, sending GBP/USD down further. By contrast, it’s not clear how there could be a hawkish surprise from the BoE.

As for the US, it would be a shock if the Federal Reserve failed to deliver a tapering of its monetary stimulus program but USD will likely still benefit at the expense of currencies like GBP.

GBP/USD PRICE CHART, DAILY TIMEFRAME (APRIL 13 – NOVEMBER 2, 2021)

Source: IG (You can click on it for a larger image)

BANK OF ENGLAND TO RAISE RATES?

While the markets have largely priced in a UK rate increase, economists are not so sure. In polls by the Reuters and Bloomberg news agencies, analysts asked for their opinions were roughly split equally between those expecting a rate rise and those predicting no change. It is also not clear whether voters on the MPC will be unanimous in their verdict, which seems unlikely and could be an additional drag on GBP.

GLIMMER OF HOPE FOR GBP

On the bright side for GBP, France seems to have backed away from a full-scale confrontation with the UK over fishing rights. This was never expected to be a major factor in the markets but is still moderately supportive for Sterling. However, IG client positioning data back the argument for a weaker Pound.

The retail trader data for GBP/USD show 56.14% of traders are net-long, with the ratio of traders long to short at 1.28 to 1. The number of traders net-long is 6.90% higher than yesterday and 19.41% higher than last week, while the number of traders net-short is 5.57% higher than yesterday and 14.52% lower than last week.

Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias.