Ella 
GBP/USD was directionless on Wednesday, trading within a tight range below the 1.2300 mark during the Asian session. Meanwhile, GBP/USD holds above the one-week low hit on Tuesday and now appears to have broken off this week’s pullback from the 200-day simple moving average, which sits around 1.2425-1.2430, the high since mid-September.
Traders appeared reluctant to place aggressive bets ahead of regular speeches from Bank of England Governor Andrew Bailey and Federal Reserve Chairman Jerome Powell, choosing instead to stay on the sidelines. Bailey’s speech will be seen as reaffirming the Bank of England’s interest rate cut in August 2024, given the high risk of the UK economy entering recession. In fact, the Bank of England’s chief economist Hugh Peel said on Monday that the Bank of England may wait until the middle of next year before cutting interest rates from their current 15-year high. This is likely to continue to weigh on Sterling (GBP) and favor GBP/USD volatility.
At the same time, investors will pay close attention to Federal Reserve Chairman Powell’s speech for clues on the path of future interest rate increases, which will have a key impact on the recent price trend of the U.S. dollar. The Fed noted last week that financial conditions may have become tight enough to keep inflation under control. Markets took this as a signal that the Fed was ending its policy tightening campaign. In addition, weak U.S. employment data released last Friday once again confirmed the view that the Federal Reserve will remain on hold for the third consecutive time in December and triggered a sharp correction in the dollar from near its highest level in the year.
In other words, the speeches of many influential Federal Reserve members this week still maintained a hawkish bias and maintained the prospect of further interest rate increases. That led to a strong rebound in the dollar from the multi-week lows hit on Monday. However, further declines in U.S. bond yields and stronger risk sentiment have failed to allow the safe-haven dollar to consolidate its gains over the past two days. This is the only factor that has given the GBP/USD pair some support. Meanwhile, the aforementioned fundamental backdrop favors bears, suggesting that downside resistance to GBP/USD remains minimal.
