In recent sessions, the British Pound has shown remarkable resiliency and strength as compared to the US Dollar. Excepting the antipodeans, it’s been the best performing currency against most major peers. At the time of writing, the GBP/USD pair is firmly above the 20-day Exponential Moving Average (EMA) at 1.3192. It is now close to the key round number of 1.3250 vs. the Dollar. And markets are going bananas over the prospect of Kevin Hassett replacing Jerome Powell as the new Federal Reserve chairman. That kind of reaction is creating an upward momentum in the markets.
The Pound is increasing and not just because the markets are speculating. Technical indicators are behind this push up, indicating a potential trend reversal. Our recent technical analysis shows that there’s a new Higher Low-Higher High (HL-HH) formation on the daily chart. This would be interpreted extremely positively for GBP/USD. Investors will be looking with great excitement and suspicion at incoming economic data. The US ADP Employment Change and ISM Services PMI in November have the potential to move currencies markedly.
Key Economic Indicators
The commercial and financial economic backdrop for the Pound is decidedly mixed, with many sectors indicating troubling underlying issues. The ILO Unemployment Rate rose to 5% in the three months to September. That corresponds to the highest rate to which we’ve climbed in four years. September CPI report, released earlier this month. Inflationary pressures have eased. Given this surprising/reassuring development, what does it imply about the Bank of England’s future interest rate policies?
Even with these issues, the market attitude towards the Pound is surprisingly positive. Today economists are expecting a net gain of only 5,000 new jobs from private employers in the United States for November. This is a huge decrease from the 42,000 jobs gained in October. This expected drop is what stands to put further pressure on the US Dollar. This is even more the case if it happens to align with bad jobs numbers.
With respect to the US Dollar Index (DXY), it’s recently registered a new monthly low close to 99.00. The rapid decline has raised a lot of pressure on the Dollar, fuelling further Dollar selling activity. Consequently, the British pound is enjoying its success and holding firm and strong well over the psychological number of 1.3000.
Speculation on Kevin Hassett’s Appointment
In our view, the possible appointment of former CEA chair Kevin Hassett as the next chair of the Federal Reserve has launched the biggest market-fueled intrigue. Hassett has been a proponent of lower interest rates in numerous recent interviews. That raises questions about the future course of monetary policy under his chairmanship.
Former President Donald Trump alluded to Hassett’s candidacy during a recent statement:
“I guess a potential Fed chair is here too. Am I allowed to say that? Potential. He’s a respected person, that I can tell you. Thank you, Kevin.” – Trump, Reuters reported.
If confirmed as chair, analysts think it would probably be negative for the US Dollar. The prospect of lower interest rates would reduce the Dollar’s appeal to investors looking for yield.
Market Reactions and Future Outlook
Traders are getting increasingly bullish on the Bank of England’s hand. That’s why they think the bank will opt to lower rates in its next monetary policy announcement on December 18. So, rising unemployment rates combined with moderate inflationary pressures should give us pause. The majority think the UK economy requires more assistance to address these obstacles.
The 14-days Relative Strength Index (RSI) is presently 54.80. This level is just above the 50 mid-line and indicates increasing bullish momentum for GBP/USD. This highly bullish dynamic would only serve to embolden traders even more to spend money on the Pound.