GBP/USD: Mildly offered around 1.1080 amid looming collapse in UK markets, focus on US inflation

• GBP/USD grinds lower while paring the bounce off two-week low.
• UK Chancellor Kwarteng passes the buck to BOE if British markets collapse next week.
• Challenges to sentiment, hawkish Fed bets keep bears hopeful ahead of US CPI.

GBP/USD holds lower ground near 1.1080 heading into Thursday’s London open. In doing so, the Cable pair traders brace for the US inflation data while also fearing a collapse of the UK markets’, as recently highlighted by British Chancellor of the Exchequer Kwasi Kwarteng.

“Old Lady will be to blame if UK markets slide next week,” said UK’s Kwarteng early Thursday. The news joined firmer US Treasury yields and other risk-negative catalysts, especially relating to China and coronavirus, to weigh on the GBP/USD prices.

It should, however, be noted that the same exerts additional pressure on the BOE to announce a stronger rate hike that can be seen in the money market bets suggesting a full percentage rate lift by the BOE during the next monetary policy meeting. The same restricts the GBP/USD pair’s downside.

On the other hand, hawkish Fed bets join the pause in the US Treasury yields’ previous downside to underpin the US dollar’s recovery before the all-important US Consumer Price Index (CPI) data. That said, CME’s FedWatch Tool prints a nearly 81% chance of the Fed’s 75 bps rate hike in November.

Amid these plays, the US stock futures struggle to defend the early-day gains while the yields remain mildly positive but the US Dollar Index (DXY) remains sidelined as traders await the CPI numbers.

Forecasts suggest that the headline US CPI is expected to ease to 8.1% YoY versus 8.3% prior. However, the more important CPI ex Food & Energy is likely to increase to 6.5% YoY from 6.3% prior and can favor more downside of the GBP/USD pair.

Additionally, chatters surrounding the Bank of England’s (BOE) gilt buying program will also be important for immediate directions.

Also read: US September CPI Preview: Monthly core inflation is the figure to watch

Technical analysis

A 13-day-old horizontal support area near 1.0930-15 lures GBP/USD bears unless the quote stays successfully beyond the 21-DMA hurdle of 1.1155.