Decline approaches interim support – OCBC

The British pound (GBP) continued to trade with a strong bias after BoE Governor Bailey unexpectedly talked about taking a more aggressive easing stance. The pair was last at 1.3100 levels, notes Christopher Wong, FX strategist at OCBC.

The catch-up in favorable re-pricing should continue to dampen GBP bulls

“In an interview with The Guardian last week, he said the BoE could become a bit more aggressive and ‘a bit more activist’ in its rate-cutting approach if the inflation news continues to be good. This is a change from the last MPC in September, where policymakers stressed the need for policy to remain restrictive for “long enough” and that most members saw the need for a gradual approach to lifting restraint.

“A catch-up in convenient re-pricing should continue to dampen GBP bulls. Our view on rates remains unchanged – another 25bp cut in Bank Rate before the end of the year, likely at the MPC meeting in November. Thereafter, we expect a 25bp rate cut each quarter through 2025. Our rate cut expectations are based on our lower inflation forecasts than the BoE. Governor Bailey’s latest comments must reflect a change in his assessment of inflation and/or the growth outlook.”

“Daily momentum is bearish, while the RSI decline has slowed near oversold conditions. Consolidation likely for now. Support here at 1.3090 (50 DMA), 1.30 (38.2% fibo retracement from April low to September high) and 1.2935 (100 DMA). Resistance at 1.3166 (23.6% fibo), 1.3230 (21 DMA).”