November 12, 2021 11:33:47

It’s been a turbulent few weeks for cable traders. We’ve had the surprise “hawkish hold” by the Bank of England MPC last week. This was followed by blockbuster US inflation data on Wednesday. Potential Brexit issues linger too, though many of the costs of the divorce have already been taken on board.

Markets have pulled back their pricing of future rate hikes by the BoE. There is now a 32.5% chance of a 10bp rate hike and a 67.5% of a 20bp move at its December meeting. This is according to the CME BoEWatch Tool. We note that BoE Governor Bailey has recently repeated that the bank “will have to act” if inflation expectations rise.

Next week’s data releases will be key in determining if policymakers do raise rates more gradually. The current state of the jobs market, post-furlough, will be the focus on Tuesday. Record vacancies amid labour shortages mean companies are now struggling to find staff. Indeed, at least one measure has the labour market at its tightest in four decades.

We may see more GBP volatility with the degree of confidence in the next BoE move low. The “unreliable” boyfriend tag is not a good look for central bankers. It points to increasingly challenging communication issues for the MPC.

GBP/USD 11-month lows point to more downside

Technically, the 100-day SMA capped cable during the latter part of October. This also tallied with trendline resistance from the June high. This barrier now sits just above 1.37.

Prices collapsed after last week’s BoE disappointment through initial support at 1.3602 and 1.3571. The major printed a “doji” on Tuesday. A breakdown through 1.35 kicked in after the US CPI data.

The September lows at 1.3411 are now crucial. A weekly close below here sees bears gunning for 1.3380 and then 1.3350. GBP will need to push above 1.36 towards the 50-day SMA to negate the strong downward momentum.