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Will the British pound appreciate amid US, UK, and Japanese rate decisions?


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Where are GBP crosses headed as BoE’s hiking cycle continues despite growth and inflation concerns which US and Japanese central banks also have to contend with this week?

bg_pound_gbp_360534882.jpgSource: Bloomberg
 Axel Rudolph | Market Analyst, London | Publication date: Wednesday 16 March 2022 

It seems a foregone conclusion that the Bank of England (BoE) will raise rates for the third time in a row on Thursday with a return to the pre-pandemic 0.75% base rate being priced in.

The anticipated increase marks the continuation of the hiking policy in place since the end of 2021 as high inflationary pressures slow growth.

Already high inflation has been exacerbated by the war in Ukraine which has driven oil and gas prices to levels last seen in 2008, signalling that UK consumer price inflation (CPI) will keep rising too, perhaps even close to double the previously expected peak of 5.5% for this year.

Coupled with this is the slowdown in growth forecasts, as inflation prompts consumers to reduce spending. The BoE, like other central banks in a similar position, may find itself hiking into a slowing economy which may have dire consequences for the pound sterling and UK assets.

Where to for EUR/GBP?

EUR/GBP has seen a swift ascent from its early March 5 ¾ year low at £0.8203, incidentally made right at the 200-month simple moving average (SMA), as worries about the impact on the economy of harsh UK sanctions on Russia weighed on the British pound.

The cross gained nearly 3% in the past couple of weeks and has nearly reached the February peak and the 200-day simple moving average (SMA) at £0.8478 to £0.8481 which are likely to act as resistance.

If overcome, however, the late December high at £0.8554 as well as the December peak at £0.8599 may be in the spotlight.

Potential slips should find support along the 55-day SMA at £0.8362.

More significant support can be spotted in the £0.8310 to £0.8286 region which held the currency pair in January and February.

16032022_EURGBP-Daily.pngSource: ProRealTime
16032022_EURGBP-Monthly.pngSource: ProRealTime

Will GBP/USD be able to defend the $1.3000 mark?

With the US Federal Reserve (Fed) expected to raise rates for the first time since 2018 amid soaring inflation (7.9% in February - the highest rate of inflation in 40 years), will GBP/USD be able to remain above the psychological $1.30 mark ahead of the BoE'a anticipated 25bps rate hike tomorrow?

GBP/USD is currently trying to bounce off its 1 ¼ year low at $1.3001 amid ongoing peace talks in eastern Europe with the cross heading back up towards its downtrend channel resistance line at $1.3111.

Slightly further up a band or resistance can be spotted between the late November, December lows and last Thursday’s high at $1.3163 to $1.3194. Further up sits minor resistance at the 24 February $1.3273 low.

A drop below this week’s low at $1.3001 would likely lead to the $128.55 to $1.2813 support zone being targeted. It contains the June 2020 high and the November 2020 low.

16032022_GBPUSD-Daily.pngSource: ProRealTime
16032022_GBPUSD-Weekly.pngSource: ProRealTime

 

GBP/JPY’s recent advance likely to continue amid BoE rate hike while BoJ maintains dovish stance

GBP/JPY is expected to continue its recovery from the ¥150.98 early March low and targets the one-month downtrend line, early March high and the 55-day SMA at ¥154.97 to ¥155.23 since the BoE is to raise rates by another 25 basis points while the Bank of Japan (BoJ) is expected to maintain its current accommodative policy stance.

Over the next few weeks, the October, January and February highs at ¥157.77 to ¥158.22 may be reached as well. Minor support is found along the 200-day SMA at ¥153.35 and also between the January and early March lows at ¥152.91 to ¥152.67.

Key support remains to be seen at the current March low at ¥150.98, a currently unexpected slip through which would put the December trough at ¥148.98 back on the map.

16032022_GBPJPY-Daily.pngSource: ProRealTime
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