Pound rebounds, crosses 1.36

The British pound has reversed directions and edged higher in the Wednesday session. GBP/USD is currently trading at 1.3645, up 0.42% on the day.

What does BoE have up its sleeve?

There is growing speculation that the BoE is planning a rate hike in the short term, and recent hawkish comments from BoE Governor Andrew Bailey and MPC member Michael Saunders have raised market expectations that the central bank has an itchy finger on the rate trigger.

One can point to high inflation and Tuesday’s job reports for support for a rate hike, but that argument does have some holes. Firstly, the BoE, taking a page from the Fed script, has been insisting that inflation was transient and would ease lower. Wage growth has jumped and unemployment rolls have dropped, but at the same time, the furlough scheme had some 1.3 million using it, and many of those are yet to find full-time employment.

The GDP report for August came in at 0.4%, a lukewarm report card for the economy. This follows a -0.1% read in July, which means that the economy is chugging slowly. GDP for the third quarter is projected at 1.5%, well below the BoE forecast. Growth may not be the central bank’s primary factor when it come to rate policy, but the current rate of growth doesn’t seem to cry out for a rate hike. The markets continue to expect a hike in November or December, but some analysts such as ING are projecting that BoE will wait until 2022.

We will hear from MPC members Silvana Tenreyro and Catherine Mann on Thursday, and it will be interesting to see if either of them discusses a timeline for a rate hike. Even if the BoE does raise rates before the end of the year, it remains unclear just how steep the Bank plans to go with future rate hikes.

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GBP/USD Technical Analysis

• 1.3674 is under pressure in resistance, as GBP/USD has moved higher. 1.3729 is next.
• There is support at 1.3548. Below, there is support at 1.3477

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