**GBP/USD Bounces Off Session Lows to Trade at About 1.3416**
*Originally written by Kathy Lien for FXDailyReport.com*
The British pound (GBP) experienced notable volatility against the US dollar (USD) during recent trading sessions, finding key support and rebounding from its session lows to trade near 1.3416. This development comes in the context of ongoing turbulence in global markets, diverging monetary policies between the Bank of England (BoE) and the US Federal Reserve, and persistent geopolitical risks impacting major currencies.
**Market Recap: GBP/USD Recovery from Lows**
The GBP/USD currency pair began the trading day under pressure, with the pound initially sliding on the back of risk aversion and a firmer US dollar. The pair touched an intraday low as traders digested mixed economic data, uncertainty over central bank policy paths, and the ebb and flow of risk sentiment across global markets. By late European trading hours, however, the GBP managed to claw back its losses, recovering to trade around 1.3416 against the greenback.
Key drivers for the pair’s movement included:
– Safe haven flows into the US dollar amid market jitters
– Shifts in rate hike expectations from both the Federal Reserve and the Bank of England
– Ongoing supply chain disruptions and inflation-related worries in the UK
– Market positioning ahead of upcoming economic data releases
**Macro Background: Divergent Central Bank Policies**
Central bank monetary policies remained at the forefront of FX markets. The US Federal Reserve’s increasingly hawkish rhetoric and mounting speculation around more aggressive rate hikes have buoyed the US dollar in recent weeks. In contrast, the Bank of England struck a somewhat softer tone, despite its December rate hike, leading traders to reassess their outlook for UK interest rate increases through 2024.
**US Dollar Strength on Fed Expectations**
– The US dollar index (DXY) extended gains as traders braced for a steeper Fed tightening cycle.
– Federal Reserve policymakers pointed to persistent inflation as a catalyst for considering more rapid policy normalization.
– US benchmark Treasury yields firmed as markets eyed potential multiple rate hikes throughout the year.
– Expectations for a strong US jobs market added further support to the greenback.
**UK Economic Concerns Temper BoE Expectations**
– UK inflation continued to hover above the BoE’s 2 percent target, driven by rising energy prices and supply chain constraints.
– Economic growth indicators in the UK showed resilience but pointed to potential headwinds from the Omicron variant, Brexit-linked disruptions, and labor shortages.
– Earlier market optimism for a series of rapid BoE rate hikes moderated as officials adopted a careful approach, citing uncertainty over the economic recovery’s pace.
**Detailed GBP/USD Analysis: Technical and Fundamental Insights**
**Technical Perspective**
GBP/USD’s intraday rebound came after the pair failed to sustain a move below critical support levels. The price action suggested a degree of buying interest at lower levels, with traders looking for value as the dollar’s rally appeared overextended.
Chart signals and technical parameters included:
– Key support near the 1.3350-1.3400 area, with subsequent resistance around 1.3480 and 1.3520.
– The 200-day moving average (DMA) acting as a magnet for price action, as markets gauged the pair’s medium-term bias.
– Momentum indicators, such as the RSI and MACD, flashing neutral to slightly bullish signals in the short term.
**Fundamental Perspective**
Several factors remained in focus for currency traders navigating the GBP/USD landscape:
1. **UK Data Releases**
– GDP growth, consumer sentiment, labor market figures, and CPI inflation readings were closely watched.
– Any indications of slowing activity or persistent inflation would influence the BoE’s policy stance, directly impacting GBP performance.
2. **Monetary Policy Commentary**
– Statements from BoE officials on rate hikes, the inflation trajectory, and
Read more on GBP/USD trading.