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GBP/USD bears keep an eye on 1.1300 ahead of the Fed rate decision

September 19, 2022 14:29:26

The British pound found no relief and continues to scale down as the fresh trading week begins. Domestic factors affect the performance of the major heavily as compared to the other major factors. Depressive economic data, rate differential between the Bank of England (BoE) and Federal Reserve, and a steady U.S dollar kept the pressure on the cable.

On Friday, the GBP/USD pair tested the 37-year low near 1.1350 following disappointing Retail sales data.  The Office for National Statistics data revealed a 1.6% drop in sales data, the most significant decline since December 2021. Much lower than market expectations. This implied high inflation is already squeezing household budgets, raising fears that the U.K economy is already in a recession.

This led to the expectation that the Bank of England would be less hawkish on the rate hikes on September 22. The central bank might opt for a 50 basis point to 2.25%.

The U.S dollar index jumped to 110.18 close to its highest level in 20 years. Investors seek shelter in safe-haven assets ahead of the big central bank’s decisions. The market is bracing up for another supersized rate hike to tackle soaring inflation. The U.S CPI data rose at 8.3% annually in August, while Retail sales increased 0.3% in August as compared to July. This is a perfect recipe for a 75bps rate hike by Fed. Even, some market analysts estimated bigger than that.

On the other hand, the Bank of England is lagging behind in this era of a rate hike by the major central banks. The European Central Bank (ECB) and the Swiss National Bank (SNB), the banks known for holding negative interest rates are considered more hawkish than BoE.

Now, if the Bank of England comes up with anything lower than market expectation then it would negatively affect the pound’s further prospects.

The pound depreciated more than 15% against the greenback since the beginning of the year as compared to a 12% decline in the euro.

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