MAs Turn Into Resistance for GBPUSD After BOE Policy Hearings

GBPUSD reversed higher yesterday and gained 1 cent after an 8 cent decline, but the climb stopped at resistance below 1.27 ahead of the BOE Monetary Policy Report Hearings.

GBP/USD experienced significant volatility recently, breaking below 1.26 last week due to hawkish Federal Reserve commentary and weak UK economic data. Sellers pushed the pair lower, but it found support at the 100-week Simple Moving Average (SMA), avoiding a deeper slide toward 1.23. Yesterday’s market theme of USD weakness allowed the pair to recover nearly 1 cent, climbing to resistance near 1.2690 at the 200-hour SMA.

GBP/USD Chart Daily – The 200 SMA Stopped the Climb

This resistance level held firm, halting the recovery and leading to a close just below 1.27. The decline from late September has been severe, with GBP/USD losing over 8 cents after failing to maintain gains above 1.34. This drop was driven by contrasting economic performance in the U.S. and UK, with the U.S. economy showing strength and the UK grappling with challenges.

UK labor market data revealed rising unemployment, and GDP contracted by -0.1% in September, highlighting economic fragility, as the decline in the Rightmove house prices yesterday also confirmed. These factors compounded bearish sentiment, extending the pair’s losing streak to six consecutive days, during which it fell from a high of 1.3000 to a low of 1.2597 last Friday. Earlier BOE member Greene also made some mixed comments.

Comments from BOE Greene

• UK’s services inflation remains elevated but is trending downward.
• The UK budget is expected to raise inflationary pressures.
• Overall inflation gauges are generally declining.
• Services inflation is not decreasing as quickly as desired.
• The labor market is easing, and wage growth is expected to moderate.

However, yesterday’s reversal was also considerable, sending the price close to 1.27. In the short term, the area below 1.27 will be crucial for traders. A move above this level could target the next resistance at 1.2850, where the 10-day SMA resides. Conversely, failure to break higher would likely refocus attention on the recent low at 1.2596. A break below that could pave the way for further declines toward 1.23. The pair’s direction will hinge on upcoming economic data from the U.S. and UK, along with shifts in market sentiment and monetary policy expectations.

Bank of England Monetary Policy Report Hearings

Comments from the Bank of England Governor before the UK Treasury Committee

• Services inflation requires close monitoring and remains above levels consistent with target inflation.
• Inflation was lower than expected during the BoE’s rate cuts.
• A gradual approach to easing monetary policy helps assess risks to inflation.
• Business response to higher employment costs is a critical aspect of the budget.
• Inflation’s return to target has been faster than anticipated.
• Uncertainty remains over the effects of the national insurance rise.
• H1 GDP growth was significantly stronger than forecasted.
• Evidence suggests second-round inflation effects are diminishing.
• Wage pressures may persist longer than expected.
• Recent inflation data has been lower than expected, but future trends remain uncertain.

Remarks by Alan Taylor before the UK Treasury Committee.

• Gradual rate cuts are appropriate, implying around 100 bps of easing over the next year.
• This aligns closely with the current market curve, but outcomes depend on economic conditions.
• Faster rate cuts could be justified under specific circumstances.
• Labour market data is critical for shaping the pace of rate cuts.
• Disinflation is progressing as expected.
• QE remains essential as a crisis management tool.
• QT is steering the BoE in a healthier direction compared to past practices.

GBP/USD Live Chart