March 4, 2022 9:59:50

The pound has suffered this week even though it is faring better than its battered European counterparts like the euro and Swedish krona. Indeed, EUR/GBP has made new cycle lows today as buyers try to defend the prior February bottom at 0.8284. The hugely psychological 1.10 EUR/USD barrier of support is also in focus today. Any decisive break of this level will drag cable with it.

In the meantime, divergent central bank policies are back in play. The Fed seems like it will continue with a steady path of rate hikes, with six 25bp moves back to being priced in for this year and the first one in a couple of weeks. The BoE’s rate path has also not been reined in as much as the ECB’s, with five hikes still priced for 2022.

In the current climate of European uncertainty, policy normalisation is off the table on the continent in the coming months. This also means the scope for sterling gains against the greenback through the remainder of the year might be limited. This is espcially true if the dollar continues to gain from safe haven flows. There may also only be a modest recovery even when risk appetite does return.

GBP/USD trading at the bottom of this week’s range

The 200-day SMA saw the major top out at 1.3748 in mid-January. Prices did consolidate above long-term trendline support into February. But the Russian offensive saw a flight to quality and the dollar. The pair plunged through the 100-day SMA at 1.3483 and that trendline which now turns into resistance.

This week, cable has traded in a range between 1.33 and 1.34. A new marginal low for the year printed on Wednesday at 1.3271 but buyers stepped in to defend this area again. A clear breakdown will target 1.32 and the December low at 1.3160. Resistance is around 1.34 and trendline resistance at 1.3435.