The pound set fresh intraday highs against the dollar in early European trade on Friday (Nov. 12), with reports of easing tensions between the U.K. and Europe, but lack of follow-through has seen the rally pull back slightly for now.
The pound found some support against the dollar around 1.3350 and rebounded slightly from the lowest level since December 2020 touched earlier on Friday, ending a three-day losing streak. The dollar saw some profit-taking after hitting a 16-month high, which was seen as a key factor supporting the pound against the dollar. Nonetheless, any meaningful recovery still seems elusive and the attempted rally move carries the risk of aborting soon.
Wednesday’s release of higher-than-expected U.S. consumer inflation data reaffirmed market expectations that the Fed would be forced to raise interest rates sooner rather than later. In fact, federal funds futures suggest that a Fed rate hike could come as soon as July 2022. This, coupled with rising U.S. Treasury yields, should help limit any meaningful corrective slide in the dollar and discourage bulls from making big bets on the pound against the dollar in the midst of Britain’s Brexit woes. On top of that, a modest decision by the Bank of England (BoE) last week could further curb any meaningful gains in the pound.
On the other hand, the EU is preparing a package of retaliatory measures if the UK triggers Article 16. The two sides will hold new talks on Friday to avoid a looming trade war.
The British newspaper The Times, however, reported positive comments made by British Brexit officials on various occasions, which gave the pound a respite.
“Britain’s Brexit Secretary Lord Frost will signal to the EU’s chief negotiator Maros Sefkowicz that the British government will continue to work towards a deal on the much-debated Northern Ireland agreement and that intensive negotiations will take place in the coming weeks. ”
“Frost is keen to stress to Cevkovic that while the UK has reservations about the Commission’s proposal to reduce the inspection of goods crossing between the UK and Northern Ireland, this could be used as a basis for an agreement if this is adjusted, the sources said. ”
Therefore, it would be prudent to wait for strong follow-through buying before confirming that the down market is over. Market participants are now looking forward to Bank of England Monetary Policy Committee member Jonathan? Haskell’s scheduled speech, hoping for some boost from it. Later in the morning North American market, the preliminary University of Michigan Consumer Confidence Index may influence the dollar price dynamics and create some trading opportunities in GBPUSD.
The upper resistance is focused on 1.3412, 1.3458 and 1.3602, while the lower support is focused on 1.3353, 1.3312 and 1.3267.
(GBPUSD daily chart)