GBP/USD dives as dollar surges on renewed US rate hike speculation

<p>GBP/USD (daily chart shown below) took the worst dive in nearly four weeks on Tuesday as renewed speculation over a 2015 Fed rate hike boosted […]</p>

GBP/USD (daily chart shown below) took the worst dive in nearly four weeks on Tuesday as renewed speculation over a 2015 Fed rate hike boosted the dollar, while perceptions of a relatively more dovish Bank of England (BOE) weighed on the pound.

Although the BOE is also widely expected to raise interest rates at some point in the foreseeable future, at least one BOE Monetary Policy Committee member sees the rate hike cycle as “limited and gradual” whenever the process actually begins. Furthermore, an initial rate hike in the UK is not expected until sometime next year. In contrast, the US is expected by many market participants to begin its own monetary tightening cycle likely by the end of this year, after having kept rates unchanged during last week’s Fed meeting.

GBP/USD Daily Chart

 

GBP/USD fell by over 160 pips at one point on Tuesday from its previous perch around the 1.5500 support/resistance level. In the process of this plunge, the currency pair has reached back down to touch its key 200-day moving average, above which it had been trading for the past two weeks.

This bearish turn of events for GBP/USD occurs after the dollar failed to sustain its pullback late last week on news that the Fed would hold interest rates unchanged. The dollar rebounded swiftly and sharply from that very brief setback, placing renewed pressure on both the GBP/USD and EUR/USD.

As UK/US interest rate expectations presently stand, GBP/USD could well have significantly further to fall from its current position. A break below the noted 200-day moving average should push the currency pair back down towards its major 1.5200-area support target, last re-tested just over two weeks ago. Any further downside move should then begin to target the 1.5000 psychological support objective.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.