GBP/USD edges higher after BoE announces additional measures, lacks any follow-through

• GBP/USD gains some positive traction after the BoE announces additional support measures.
• Concerns about the UK government’s fiscal plans, recession fears could act as a headwind.
• Aggressive Fed rate hike bets, the risk-off mood underpins the USD and should cap gains.

The GBP/USD pair stalls its recent sharp pullback from the vicinity of the 1.1500 psychological mark and attracts some buying on the first day of a new week. Spot prices edge higher through the early European session and climb back above the 1.1100 mark, though lack bullish conviction.

The Bank of England announces the launch of the Temporary Expanded Collateral Repo Facility (TECRF) to support market functioning. This, in turn, provides a modest lift to the British pound and assists the GBP/USD pair to rebound over 50 pips from the 1.1050 area, or a one-week low touched last Friday. That said, any meaningful upside still seems elusive amid concerns about the UK government's fiscal policy and recession fears.

The US dollar, on the other hand, remains firm amid firming expectations that the Federal Reserve will stick to its aggressive rate hiking cycle to tame inflation. In fact, the markets are pricing in over 80% chances of another supersized 75 bps Fed rate hike move for the fourth consecutive meeting in November. The bets were reaffirmed by the recent hawkish comments by several Fed officials and Friday's upbeat US jobs data.

Apart from this, the prevalent risk-off environment continues to act as a tailwind for the safe-haven greenback and contribute to capping gains for the GBP/USD pair, at least for the time being. The market sentiment remains fragile amid worries about economic headwinds stemming from rapidly rising borrowing costs and geopolitical risks. This, along with US-China trade jitters, tempers investors' appetite for riskier assets.

In the latest development, the White House unveiled export controls cutting off Chinese companies from certain semiconductor chips made with US equipment. Market participants turned cautious amid worries that any retaliation from China will worsen trade ties between the world's two largest economies and have deeper economic implications. This should continue to underpin the USD and keep a lid on the GBP/USD pair.

There isn't any major market-moving economic data due for release on Monday. Furthermore, relatively thin trading volumes on the back of the US back holiday in observance of Columbus Day warrants some caution before placing bullish bets around the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through buying in order to confirm that spot prices have formed a near-term bottom around the 1.1050 area.

Technical levels to watch