GBP/USD Faces a Return to Sub-$1.09 on US CPI Report and BoE Updates

It was a quiet start to the Wednesday session for the GBP/USD. From the economic calendar, there were no economic indicators to influence the Pound. The lack of stats leaves the Pound in the hands of market risk sentiment and Bank of England policy moves.

The current focal point remains the emergency bond-buying program and whether the BoE will cease purchases on Friday. Either way, market conditions suggest a difficult November meeting for the Monetary Policy Committee (MPC).

On Wednesday, Bank Chief Economist Huw Pill warned that the MPC could deliver a sizeable rate hike in November to tackle inflation and the government’s fiscal stimulus goals.

Following Monetary Policy Committee Member speeches on Wednesday, no members are due to speak according to the BoE calendar. However, the markets will need to monitor comments to the media.

GBP/USD Price Action

At the time of writing, the Pound was down 0.13% to $1.10810. A mixed morning saw the Pound rise to an early high of $1.11202 before falling to a low of $1.10752.

Technical Indicators

The Pound needs to avoid the $1.1051 pivot to target the First Major Resistance Level (R1) at $1.1178 and $1.12. However, the lack of UK stats leaves the Pound in the hands of BoE chatter and the US CPI report.

In the case of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.1261. The Third Major Resistance Level (R3) sits at $1.1472.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0968 into play. However, barring another extended sell-off, the Pound would likely avoid sub-$1.08. The Second Major Support Level (S2) at $1.0840 should limit the downside.

The Third Major Support Level (S3) sits at $1.0630.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 50-day EMA, currently at $1.11153. The 50-day EMA eased back from the 100-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals.

A GBP/USD move through the 50-day EMA ($1.11153) would give the bulls a run at the 100-day EMA ($1.11691) and R1 ($1.1178). However, failure to move through the 50-day EMA would leave S1 ($1.0968) and sub-$1.09 in play.

The US Session

It is a busy day ahead on the US economic calendar, with the US CPI report as the focal point. We expect GBP/USD sensitivity to the numbers, with a pickup in inflation likely to pressure the Fed to deliver two 75-basis point rate hikes before the end of the year.

While the weekly jobless claims will likely play second fiddle to the CPI report, FOMC member chatter will also influence.

Ahead of the US CPI report, the probability of a 75-basis point rate hike in November stood at 84.8% and 28.6% in December.