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GBP Volatility Rising Ahead of FOMC & BoE Decisions



  • Choppy GBP as US Yields Dictate
  • FOMC & BoE Boosts FX Volatility

The fluctuations in the US fixed income space has continued to serve up two-way price action across USD majors. As we close out the week, the GBP/USD is trading on a softer note with a move above 1.40 proving to be one step too far for the pair, while the rise in US yields also lends support to the greenback. Overall a lack of domestic drivers at present for GBP, sees the currency take its lead from the whippy price action in the USD. UK GDP for January printed above analyst expectations, however, you’d be forgiven for dismissing this data due to the time lag.

of clients are net long.

of clients are net short.

Change in Longs Shorts OI
Daily -10% -8% -9%
Weekly -2% 6% 1%

BOE UNLIKELY TO OFFER A SURPRISE: Looking ahead to next week, there are a slew of tier 1 releases, most notably for GBP/USD, you will have both the FOMC and BoE on tap. Firstly, the BoE meeting will unlikely to offer many surprises with monetary policy expected to remain unchanged. That said, the MPC’s view on inflation will of interest, particularly after Chief Economist Haldane’s recent commentary, stating that “there is a tangible risk inflation proves more difficult to tame”. However, it is worth mentioning that Haldane is the most hawkish member of the BoE. Elsewhere, with money markets near enough fully pricing in a 15bps hike by June 2022, commentary regarding the recent rally in global bond yields will also likely garner attention.

FOMC SLR EXTENSION & DOT PLOTS: Elsewhere, the Federal Reserve is also expected to leave policy unchanged. Although, with bank capital relief through the supplementary leverage ratio due to expire at the end of the month, investors will be keenly awaiting the Federal Reserve’s decision, whereby an extension would provide some reprieve for the rally in US yields and thus allowing for some stability in the bond market. If indeed this is announced, this is likely to underpin GBP/USD. Aside from this, the Fed will release its latest dot plot and it is fair to say that a lot has changed since December. With a $1.9trillion fiscal stimulus package signed and stimulus cheques potentially in bank accounts as soon as this weekend, US growth will be revised higher, while investors will also be on the lookout for any hawkish shifts in the Fed Funds Rate dot-plot.

GBP/USD:Despite the recent pullback from the 1.42 top, the pair remains in an uptrend with the 50DMA providing support on dips. That said, 1.40 has proven to be a tough level to break and thus naturally that is the key hurdle for bulls on the topside. On the downside, support is situated at 1.3800 with 1.3750-80 below.

The Need to Know Guide on Trading the Pound (GBP)

GBP/USD Chart: Daily Time Frame

GBP/USD Weekly Forecast: GBP Volatility Rising Ahead of FOMC & BoE Decisions

Source: Refinitiv

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