GBP/USD dribbles around 1.1000 despite downbeat UK GDP, BOE’s bond-buying, Fed Minutes in focus

• GBP/USD struggles to keep the first daily gains in six around two-week low on softer UK statistics.
• UK GDP contracted 0.3% in August, IP/MP also dropped during the stated month.
• Chatters that BOE will extend bond-buying program also propel the Cable pair.
• FOMC Minutes, UK policymakers’ action will be crucial as hawkish Fed bets favor pair bears.

GBP/USD pays little heed to the UK’s downbeat economics for August as it seesaws around the 1.1000 threshold, snapping a five-day downtrend, as markets in London open for Wednesday’s trading. The reason could be linked to the softer yields and the hopes for extended stimulus from British authorities.

UK Gross Domestic Product dropped to -0.3% MoM in August versus 0.0% expected and 0.2% prior whereas the Industrial Production (IP) and Manufacturing Production (MP) also slumped into the negative territory during the stated month.

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Earlier in the day, the Financial Times (FT) raised expectations of the Bank of England’s (BOE) prolonged bond-buying and fuelled the GBP/USD prices. “The Bank of England has signaled privately to bankers that it could extend its emergency bond-buying program past this Friday’s deadline, according to people briefed on the discussions, even as Governor Andrew Bailey warned pension funds that they “have three days left” before the support ends,” mentioned FT.

It should be noted that the BOE Governor Andrew Bailey amplified the risk-off mood by citing the Financial Policy Committee’s (FPC) decision to intervene in the financial market after noting market volatility surpassed the bank stress test. The BOE expanded their gilt buying program to include inflation-linked gilts for the remainder of their intervention (due to finish on 14 October, UK time).

On the other hand, Cleveland Fed President Loretta Mester joined the chorus of hawkish Fed policymakers and propelled the market’s wager on the US central bank’s next move, which defends the US dollar buyers even as the yields retreat. That said, the latest readings of the CME’s FedWatch Tool show that market players are pricing in nearly 81% chance of the Fed’s 75 basis points (bps) rate hike in November.

Amid these plays, the US 30-year Treasury yields remain sidelined near 3.91% after rising to the highest level since 2014 the previous day whereas the US 2-year bond coupons ease to 4.28%, down for the second consecutive day. With the softer yields and hopes of further liquidity, not just from the UK but also from Japan, the S&P 500 Futures rebound from the weekly/monthly low, up 0.65% intraday at the latest.

Moving on, GBP/USD traders will keep searching for the BOE’s confirmation on the FT story for a further upside move, failing to get that may highlight the DXY strength and recall the bears. Also likely to exert downside pressure on the Cable pair is the existence of the Federal Open Market Committee (FOMC) Meeting Minutes and hopes of the Fed’s aggression.

Technical analysis

A daily closing beyond the convergence of the 10-DMA and 21-DMA, around 1.1170 appears a tough nut to crack for the GBP/USD buyers. That said, a three-week-old horizontal support restricts immediate downside near 1.0830.