- FOMC minutes signal hawkish Fed action.
- Higher job numbers may strengthen USD in the short term.
- GBP to benefit from easing travel restrictions, but the energy crisis poses a challenge.
GBPUSD was down by 0.28% in the early hours of trading at 0711 GMT on Thursday to trade at 1.3518 as the market soaked in the Fed minutes. Prior to that, the pair had registered a two-month high of 1.3598 on Wednesday.
The dollar looks bullish amid hawkish Fed
After the minutes of the FOMC Meeting indicated a hawkish tilt of the policymakers, signaling a faster rate-hike and intentions to discuss balance-sheet normalization, the cable pair reversed course from its highest levels since early November.
According to the Federal Reserve’s December meeting minutes released on Wednesday, the “extremely tight” US labor market could justify faster than projected rises in interest rates to combat high inflation.
As of 0736 GMT, the US Dollar Index, which measures the greenback’s value against six other major currencies, had gained 0.18% percent, signaling a bullish view by the market.
On Tuesday, ADP’s nonfarm employment change for December came in at 805,000, much above expectations of 400,000. When the figure comes in higher than predicted, it’s a bullish signal for the US dollar. The ADP data, which is released two days before the official government NFP data, is a reliable indicator of the US job market. The official government jobs report, including NFP data, is scheduled for release on Friday.
Easing Covid-19 restrictions could propel GBP higher
Following the Bank of England’s aggressive decision to begin the rate-hiking cycle in December, the British pound continues to be one of the best-performing major currencies. No further tightening of regulations is expected soon, according to Boris Johnson, the UK Prime Minister. Furthermore, analysts expect the Bank of England to raise rates by another 25 basis points in February, becoming the first of four hikes in 2022.
The easing of the Covid-19 crisis in the UK may potentially assist the GBP. Beginning on Friday, the UK will no longer require pre-departure testing for vaccinated tourists entering the country. A single lateral flow test will be required immediately upon arrival, with no need to isolate the patient while awaiting the outcome.
In addition, from Jan. 11, those who test positive based on rapid home test kits will no longer need to undergo PCR tests to validate their results. The implementation of the policy will begin in England next week, with the rest of the UK following suit a few days later.
Energy crisis is an existential threat
Despite the good news on the health front, the UK energy crisis is an existential threat to the GBP’s growth prospects. Britons are deeply concerned by the ongoing UK energy crisis and rising prices, with more businesses on the verge of bankruptcy. Prices have skyrocketed as a result of a huge reduction in worldwide gas supplies induced by soaring demand.
GBP technical analysis
The GBPUSD pair has been on an uptrend since December 9th, driven by strong market momentum. The RSI is currently at 59, signaling a relatively strong momentum. However, the 50-EMA is above the 20-EMA (see the chart below), which could set the stage for a bearish comeback.
For the pair to sustain upward action, it will need to stay above 1.3500. That would set the first resistance at 1.3555 and the second one at 1.3598. However, if the momentum weakens and it breaches 1.3500, it could head all the way down to 1.3445 for the second support.