The Sterling attempts to recover amid a subdued US dollar and the anxiety ahead of key Bank of England (BOE) key policy decision.
The market mood is quiet amid low volatility as the market wait for fresh trading impetus. Geopolitical and economic concerns weigh on the risk-sensitive currency.
On the domestic front, the weaker economic data points to the problem in the economy. The S&P Global/CIPS UK Services came lower at 52.6 in July against the market expectation of 53.3. Next, UK Composite PMI revised lower to 52.1 in July from the market expectation of 52.8 and from 53.7 in June.
Now, the focus shifts to the Bank of England (BoE) key rate decision due on Thursday. The British Pound held gains against the Euro and Dollar in the later part of July and in the beginning of the new series in August.
The size of the hike and the economic forecast would shape the further directional setup in the Cable. The Bank of England (BoE) is expected to increase interest rates by 50bps, its largest single increase since 1995.
On the higher side, the gains in the GBP/USD are capped by the recovery in the US dollar index towards $106.0. Chicago Fed President Charles Evans said a 50bps point hike is on the cards in September but a 75bps cannot be ruled out if needed.
As of writing, GBP/USD is trading at 1.2190, up 0.11% for the day.
But, the market seems to discount the probable hike from the central bank. This limits the gains in the pair below 1.2200.
GBP/USD hovers near 0.61% Fibonacci retracement level
On the 4-hour chart, the GBP/USD pair trading in an ascending channel, making higher highs and higher lows. After testing the highs of 1.2292 on August 1, the price retraced and found reliable support around 1.2130.
Currently, the price hovers near the 20-day EMA. This also coincides with the 0.61% Fibo. Retracement level.
We expect the GBP bulls to move higher and take out the 1.2300 psychological level.
The RSI (14) holds at 50, indicating the price might enter into consolidation. Any uptick in the oscillator would strengthen the bullish outlook.
Alternatively, on the lower side, the price could test the 0.50% Fibo. Retracement level at 1.2090.
