GBP/USD range-bound amid UK/US rate hike anticipation

<p>The pound continues to vie closely with the US dollar with respect to anticipation of interest rate hikes as the GBP/USD currency pair (daily chart shown […]</p>

The pound continues to vie closely with the US dollar with respect to anticipation of interest rate hikes as the GBP/USD currency pair (daily chart shown below) consolidates in a relatively tight trading range. With both Federal Reserve Chair Janet Yellen and Bank of England (BOE) Governor Mark Carney recently issuing rather hawkish statements, the question of timing with respect to the rate hikes has been the primary topic of speculation.

On the UK side, the BOE will release its official bank rate votes on Wednesday, which should provide a clearer indication as to the degree of hawkishness present in the BOE’s Monetary Policy Committee.

Counterbalancing the pound’s recent strength based on this rate hike speculation, however, has been the persistent strength of the US dollar, as the Fed has also signaled its own potentially impending rate hike.

GBP/USD Daily Chart

 

This rate rivalry has resulted in days of relatively indecisive price action for GBP/USD as the currency pair has traded in a moderately bearish trading range since mid-week last week, with multiple ‘spinning top’ candles just above both the 50-day moving average as well as the key 1.5500 support level.

This trading range consolidation occurs as GBP/USD continues to trade with mostly a bearish trend bias, as it has for the past month since its June year-to-date highs above 1.5900.

In the event of a breakdown below the noted 1.5500 support level, continued US dollar strength could help push the currency pair back down towards its 200-day moving average, where a one-month low was established just two weeks ago. Below the 200-day average is a major downside support target at 1.5200, which is the area of the early June lows.

To the upside, short-term resistance within the context of the current trading range currently resides around the 1.5675 level.

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