(Eren Sengezer – FXStreet)
– GBP/USD recovered modestly from multi-decade lows touched on Wednesday.
– UK’s FTSE 100 Index trades in positive territory despite escalating geopolitical tensions.
– Investors wait for Fed to announce its interest rate decision.
GBP/USD has managed to stage a rebound after having slumped to its weakest level since 1985 at 1.1304 earlier in the day. Hawkish Bank of England (BoE) bets could help the British pound stay resilient against the dollar ahead of the US Federal Reserve’s policy announcements.
Earlier in the day, Russian President Vladimir Putin announced a partial military mobilization, arguing that the West is trying to destroy Russia. Although the initial market reaction forced investors to seek refuge, the UK’s FTSE 100 Index started to edge higher, suggesting that the market mood is improving despite escalating geopolitical tensions. UK Business Department said on Wednesday that it will cap the cost of electricity and gas for businesses, allowing risk flows to return.
Meanwhile, Reuters reported earlier in the day that markets are pricing a 75% probability of a 75 basis points (bps) BoE rate hike on September 22.
In the late American session, the Fed is expected to raise its policy rate by 75 bps to the range of 3-3.25%. The updated Summary of Projections, the so-called dot plot, will be scrutinized by investors who look for fresh clues regarding the US central bank’s policy outlook.
June’s dot plot pointed to a terminal rate of 3.8% in 2023. If FOMC policymakers see the policy rate rising toward 5% and staying there next year, the dollar could continue to outperform its major rivals. On the other hand, a terminal rate projection below 4.5% could be seen as an encouraging development for stock traders and trigger a dollar selloff in the short term.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the four-hour chart started to edge higher after having met support near 30, suggesting that the pair is making a technical correction. 1.1350 (former support, static level) aligns as first resistance before 1.1400 (psychological level, 20-period SMA) and 1.1450 (static level).
On the downside, first support is located at 1.1300 (psychological level, multi-decade lows) before 1.1250 (static level) and 1.1200 (psychological level).