GBP/USD fades upside momentum near 1.1600 with eyes on Fed vs. BOE play

• GBP/USD prints mild losses around a fortnight high, probes three-week uptrend.
• Market’s confidence in Britain’s new government, hawkish bets on BOE defend buyers.
• Risk-aversion, strong US data tease pair sellers amid sluggish session.
• Second-tier US PMIs may entertain traders but FOMC, BOE’s rate decision will be crucial for fresh directions.

GBP/USD retreats towards 1.1600 while snapping a three-week uptrend with mild losses during early Monday morning in Europe. The Cable pair’s latest weakness could be linked to the market’s cautious mood ahead of this week’s key monetary policy meetings of the Federal Open Market Committee (FOMC) and the Bank of England (BOE). Also likely to have weighed on the quote is the mixed sentiment.

Although Friday’s US inflation data renewed concerns that the Fed hawks may keep the reins, the mixed details of the US GDP and looming fears that the policymakers may hint at slower rate hikes in December weigh on the GBP/USD prices. On the contrary, cautious optimism in the UK, mainly due to the credibility of the new British government, keep the pair firmer. Additionally fueling the quote are the hopes that the BOE might even surpass the market expectations of announcing the biggest rate hike since 1989.

That said, the Fed’s preferred inflation gauge, namely the US Core Personal Consumption Expenditures (PCE) Price Index rose to 5.1% YoY for September versus 5.2% expected and 4.9% prior. However, the fifth quarterly fall in US private consumption raised fears of the US Federal Reserve’s (Fed) slower rate hike starting in December.

Elsewhere, Macau’s lockdown of a casino resort and fears emanating from Russia gain major attention during a sluggish session and weigh on the GBP/USD prices. “Russia, which invaded Ukraine on Feb. 24, halted its role in the Black Sea deal on Saturday for an ‘indefinite term’ because it could say it could not ‘guarantee the safety of civilian ships’ traveling under the pact after an attack on its Black Sea fleet,” reported Reuters.

It’s worth observing that the Reuters latest poll mentioned that the BOE is to hike by 75 bps on Nov. 3 but may go bigger. The analytics on the same mentioned, “That is down from near-100% bets on a full percentage-point leap in the Bank Rate which were doused last week by new finance minister Jeremy Hunt when he reversed almost all of former Prime Minister Liz Truss's tax cuts.” The piece also cites the odds while saying, “But the delay of the first budget plan of Hunt and new Prime Minister Rishi Sunak until Nov. 17 will make it harder for the BoE to spell out its economic forecasts.”

Amid these plays, the US 10-year Treasury yields seesaw near 4.00% after snapping the 10-week uptrend by the end of Friday. Additionally testing the GBP/USD traders are the mixed moves of the equities as the US equity future prints mild losses even after Dow Jones braces for the biggest monthly jump since 1976.

Moving on, the second-tier US activity data could offer intermediate moves to the GBP/USD prices but major attention will be given to the BOE versus Fed moves. Also important will be Friday’s US jobs report for October.

Technical analysis

Despite the latest pullback, GBP/USD bears may wait for a clear downside break of the early-October peak surrounding 1.1495-90 before taking fresh entries. Meanwhile, buyers should wait for sustained trading past the 100-DMA resistance, near 1.1730 at the latest. That said, the RSI and MACD signals hint at the pair’s gradual recovery.