GBP USD skids on expectations of UK US rate hike timing

The British pound sank against the US dollar on Thursday after the Bank of England held its benchmark interest rate at a record low 0.5% and dovish minutes of its Monetary Policy Committee meeting indicated that only one member voted for a rate hike.

After the minutes were released, expectations now lean towards a likely BOE rate hike sometime in the first half of 2016, stifling prior speculation that it could occur in 2015 shortly after a Fed liftoff. While the timing of an initial Fed rate hike is not certain either, it is widely expected that it will be initiated in either September or December of this year.

Thursday’s drop for GBP/USD occurs after more than three weeks of range-bound trading as speculation over the timing of US and UK rate hikes competed in a close contest. Although the BOE looks to have been delayed for the time being, the Fed’s timeline is still relatively uncertain as it largely hinges on a myriad of economic data points, perhaps most important of which is employment. Friday’s non-farm payrolls and unemployment rate releases should provide some further clarity as to the Fed’s timing.

From a technical perspective, GBP/USD is still entrenched in a rebound and partial recovery from its April long-term lows, and is still trading above its 200-day moving average. Within this partial recovery, however, the currency pair is well off its year-to-date high of 1.5928 that was hit in June.

As noted, GBP/USD has traded within a tight range for more than three weeks, fluctuating around its 50-day moving average. Thursday’s drop remains largely within the confines of this trading range.

Impending trading opportunities for GBP/USD should currently take the form of potential breakouts of this trading range, which should hinge upon Friday’s reports on the US employment picture.

A positive picture, which would increase speculation of an earlier Fed rate hike, would likely prompt a GBP/USD breakdown. Any sustained breakdown below 1.5450, which is around the bottom of the trading range, could see the currency pair pressured towards its 200-day moving average and the 1.5200 downside support target. To the upside, key resistance for the trading range resides around the 1.5690 level.