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The British Pound slid significantly lower last week, after the Bank of England surprised markets by keeping interest rates at current levels. The BoE voted 7-2 to maintain current rate levels at its November meeting, leading to a sharp selloff for the pound as traders rapidly unwound hawkish rate bets. Prior to the meeting traders had priced in that the central bank would raise rates to as high as 1% next year. These expectations have now been pushed back to early 2023.
Source – CME Group
However, the market is still pricing in a 65% probability that the bank will raise the current target rate by 10 basis points, with a 35% chance that a 20-basis point hike could be on the table. This suggests that the recent sell-off may be somewhat overdone, given the strong possibility that the BoE will indeed deliver a rate hike at its upcoming meeting next month. Attention now turns to the preliminary estimates for third-quarter GDP to be released on November 11. A better-than-expected print would likely solidify current market pricing and push the British Pound higher against its major counterparts. On the other hand, a disappointing release could trigger a more extended decline for the local currency, with traders possibly pushing back rate hike expectations to early next year.
Source – TradingEconomics
Technically, GBP/USD rates look set to regain lost ground in the near-term as a Double Bottom reversal pattern takes shape above key psychological support at 1.3400.
The formation of a Bullish Hammer candle on November 5 also hints at the possibility of a move higher and may open the door for GBP/USD to climb back towards confluent resistance at the 9-day EMA and August low (1.3602).
A daily close above that would bring the Double Bottom neckline and sentiment-defining 200-day moving average into focus.
However, if sellers can successfully breach the September low (1.3412), a more extensive decline towards the 61.8% Fibonacci (1.3255) is likely.
Chart prepared by Daniel Moss, created with Tradingview