GBP/USD defends 1.3600 as USD trims Fed-led gains on BOE Super Thursday

• GBP/USD rebounds from five-week low, picks up bids of late.
• Fed propelled USD but Evergrande headlines, doubts over rate hike trigger consolidation mode.
• Risk-on mood, UK inflation expectations keep buyers hopeful even as BOE isn’t ready for any moves.
• US PMIs, Brexit and China news also lengthen the watcher’s list.

GBP/USD consolidates the post-Fed losses, up 0.08% intraday while refreshing daily high to 1.3633 heading into Thursday’s London open. In doing so, the cable pair recovers from a monthly low as upbeat market sentiment underpins the US dollar pullback.

That said, the US Dollar Index (DXY) drops 0.10% on a day while stepping back from a one-month peak, paring the gains earned due to the Federal Reserve’s (Fed) tapering announcement.

The risk-on mood, mainly due to headlines concerning Evergrande and doubts over the Fed rate hike, could be linked to the recent optimism in the market. Also, chatters that the US policymakers make progress on the much-awaited stimulus and the US Food and Drug Administration (FDA) approved Pfizer booster shot of the covid vaccine for the aged above 65 add to the upbeat sentiment.

On Wednesday, the Fed matched market expectations of keeping the benchmark rate unchanged at 0.25% but the policymakers were divided over the hike, now expecting a lift from either 2022 or 2023 versus the previous support for 2023. It’s worth noting that the US central bank cut the 2021 growth forecast and remained unclear on when the rate will start rising after the tapering concludes.

Further, Chairman Jerome Powell propelled the greenback by not only signaling the positive conditions for the consolidation of the asset purchase but also the start of taper as soon as the next meeting, even if on good employment data not needing too strong figures.

On the other hand, UK PM Boris Johnson’s US visit couldn’t fetch any major results over the UK-US post-Brexit trade deal as American policymakers push for solving the deadlock over the Northern Ireland (NI) protocol. As per the latest data, UK’s exports to NI slumped due to Brexit.

Amid these plays, stock futures remain mildly bid while the US Treasury yields remain inactive after declining over two basis points (bps) to 1.30% the previous day amid an off in Japan.

Looking forward, record jump in UK inflation expectations, per Citi/YouGov survey marked by Reuters, seem to favor the hawkish hopes from the “Old Lady”.

However, the recent fundamentals concerning jobs and inflation need to be taken with a pinch of salt amid the fresh COVID-19 wave and hence BOE policymakers may remain cautiously optimistic, which in turn can help GBP/USD to extend the latest corrective pullback. Also important are the flash readings of September month activity data from the Markit and weekly job numbers for the UK and US.

Read: Bank of England Preview: Action to revolve around tapering prospects

Technical analysis

Unless staying below the previous support line from July, near 1.3635, GBP/USD stays directed towards lows marked in August and July, respectively around 1.3600 and 1.3570. Even if the cable pair rises past 1.3635 on a daily closing basis, 50% Fibonacci retracement (Fibo.) of December 2020 to June 2021 upside close to 1.3695 will challenge the bulls. Considering the bearish MACD, the pair sellers are likely set to keep the driver’s seat.