GBP/USD braces for biggest BOE rate hike since 1995 around mid-1.2100s on “Super Thursday”

• GBP/USD remains mostly steady inside a three-week-old bullish channel formation.
• BOE is expected to announce a 50-bps rate hike amid concerns surrounding economic slowdown and rampant inflation.
• Rate Statement, Governor Bailey’s speech will be more important amid hopes of conveying recession fears.
• Mixed US data, Fedspeak also contributes to the market’s inactions ahead of BOE, NFP.

GBP/USD portrays the cautious mood ahead of the Bank of England’s (BOE) monetary policy announcement during the early European morning on “Super Thursday”. In addition to the pre-BOE anxiety, a lack of market activity ahead of Friday’s US Nonfarm Payrolls (NFP), as well as mixed catalysts from the US, also restrict the Cable pair’s latest moves.

“The Bank of England is expected to raise interest rates by the most since 1995 on Thursday, even as the risks of a recession mount, in an attempt to stop a surge in inflation from becoming embedded in Britain's economy,” said Reuters ahead of the BOE announcements. It’s worth noting that the economic conditions in the UK are fragile and the political jitters, as well as the Brexit woes, add pressure on the “Old Lady”, as the British central bank is known.

Late on Thursday, UK PM hopeful Liz Truss mentioned that it would look to change the Bank of England’s mandate to ensure it controlled inflation, per the Financial Times (FT). Given Truss’ leading status in the UK PM race, the BOE may act aggressively this time. However, the central bank’s future moves and economic forecasts will be more important to watch for clear directions.

Also read: BOE Rate Decision Preview: Bailey to follow Powell’s footsteps with a dovish hike

On the other hand, China’s actions in the Taiwan Strait appear to weigh on the market sentiment and tame the GBP/USD prices. Recently, Taiwan’s Foreign Ministry crossed wires, via Reuters, saying that China is attempting to alter the status quo in the Taiwan Strait. However, Bloomberg’s news suggests the US Democratic Party members’ dissent to the US-Taiwan ties appears to tame the fears of the US-China tussles due to US House Speaker Nancy Pelosi’s Taiwan visit.

Elsewhere, St. Louis Federal Reserve Bank President James Bullard, a top hawk, was joined by Fed Minneapolis President Neel Kashkari and Richmond Fed President Thomas Barkin to exert downside pressure on the GBP/USD pair the previous day. However, San Francisco Fed President Mary Daly appeared to have flashed mixed signals and tamed the DXY bulls afterward. The policymaker said, "Markets are ahead of themselves in expecting rate cuts next year."

Amid these plays, the S&P 500 Futures clings to mild losses at around 4,150 and the US 10-year Treasury yields remain pressured at around 2.71%, down three basis points (bps) by the press time.

Given the risk-off and the pre-BOE anxiety, GBP/USD could remain sidelined. That said, the US Good and Services Trade Balance for June, expected $-80.1B versus $-85.5B prior, as well as the weekly Initial Jobless Claims, expected 259K versus 256K prior, will also decorate the calendar and are important to watch too.

Technical analysis

GBP/USD pair’s rebound from the three-week-old channel’s support line joins firmer RSI (14) and the bullish MACD signals to keep buyers hopeful. With this, the recovery moves can aim for the multiple highs marked during late June, around 1.2330 ahead of challenging the aforementioned channel’s resistance line, at 1.2345 by the press time.

Meanwhile, pullback moves need validation from the channel’s support line, at 1.2120 by the press time, a break of which could direct the quote towards the previous resistance line from February, near 1.2100. Also acting as short-term key support is the convergence of the 21-DMA and the resistance-turned-support line from June 16, close to 1.2030-25.