GBP/USD rangebound under 1.3450 as flash PMIs, more BoE speak eyed

• GBP/USD is rangebound under 1.3450 despite a slightly more dovish sounding BoE’s Bailey over the weekend.
• The pair awaits FOMC minutes, the Fed Chair nomination, UK flash PMIs and more BoE speak this week.

GBP/USD is rangebound just to the south of 1.3450 at the start of what is likely to be quite a busy week for the pair. On the USD side of the equation, FOMC minutes are out on Wednesday and the Fed Chair is likely to be nominated by Tuesday, both of which could see choppiness in the buck. Meanwhile, UK flash November PMIs are out on Tuesday and speeches from BoE officials are smattered throughout the week. Liquidity conditions in FX markets are likely to be thin from Thursday onwards, given the closure of US markets on Thursday for Thanksgiving and then the expectation many will remain on holiday on Friday.

For now, GBP/USD is content to range within 1.3420-1.3450ish parameters. Support is at 1.3400 in the form of last week’s lows, while there is resistance around 1.3500 in the form of last week’s highs. The pound has shrugged off commentary from Bank of England governor Andrew Bailey over the weekend, even though the governor was not as hawkish sounding on inflation as he has come across in past weeks. He noted that the risks to the bank’s inflation forecasts are two-sided, which some analysts took as a sign that the bar for a rate hike in December is a little higher than previously thought.

The latest commentary, plus the ongoing worsening of the outlook for the European economy, is seeing GBP Short-Term Interest Rate (STIR) markets reduce expectations for a 25bps rate hike in December. December 2021 sterling LIBOR futures currently trade close to 99.80, having spent most of the last two weeks around 99.75. That implies markets are pricing 5bps less in monetary tightening in December (10bps rather than 15bps). That can loosely be interpreted as STIR markets suggesting a 2/3rds chance of a rate hike in December, down from it being fully priced last week. Another rate hold in December from the BoE presents a clear downside risk to GBP.

Elsewhere, that the UK’s Covid-19 situation remains stable. The seven-day moving average infection rate remains about 40K, close to where it has spent most of the last two months. PM Boris Johnson reiterated on Monday that nothing in the data shows the UK should move to “Plan B” Covid-19 health restrictions. In terms of the latest on the Brexit front, talks on both the access of French fishermen to UK water and on the implementation of the Northern Ireland protocol rumble. The European Commission said on Monday morning there had been some progress no fishing, but that talks were moving too slowly and called for an intensification of discussions.