The pound/dollar pair has been trading within 150 pips for almost a week. The daily chart looks like a piano with black and white keys. The fact is that buyers and sellers are trying to gain control over the market. However, neither of them managed to leave the sideways channel. There are reasonable grounds for both rise and fall. The situation is likely to remain the same until the US dollar begins moving in a particular direction.
Last week, the Bank of England supported the pound sterling. The regulator made it clear that it was planning to tighten its monetary policy. Although the central bank did not provide information about the date of the first hike of the key interest rate and withdrawal of stimulus measures, its rhetoric was hawkish and optimistic. What is more, the tapering of the asset-purchasing program was supported by 2 of 9 members of the Committee. Until September, only one regulator's representative, Michael Saunders, promoted the idea. Now, Dave Ramsden also thinks that it is high time to start the reversal of the program. However, other members voted for the wait-and-see approach. Nevertheless, the recent meeting unveiled that the overall attitude had changed and the regulator was ready to launch the tightening process.
In September, inflation shocked market participants by a stellar rise. The consumer price index jumped above 0.7% on a monthly basis, reaching its new yearly high. On a yearly basis, the indicator also soared to 3.2%, hitting a multi-year high. It was the fastest growth since May 2012. At the same time, the core consumer price index advanced to 3.1%, also reaching its multi-year high. What is more, the producer price index also rose both on a monthly and yearly basis. Although such a rapid jump in inflation indicators could be explained by many short-lived factors, the publication turned out to be impressive.
The recent report on the UK labor market also reflected the recovery of the national economy. In particular, the UK unemployment rate has been falling since January. At the beginning of the year, unemployment totaled 5.1%. However, now it is just 4.6%. Such a low reading was last seen in August 2020 that was before the coronavirus wave that worsened the labor market condition. The number of unemployment claims has also been falling since January. In August, the number of claims declined by 60 thousand. At the same time, earnings are rising. The level of average earnings (including bonuses) advanced by 8.3%, without bonuses – by 6.8%.
All this points to the fact that the pound sterling may advance against the US dollar. It is likely to be boosted by strong macroeconomic data and approach of the Bank of England. However, the rise in the British pound is capped by the resistance level of 1.3750 (the lower limit of the Kumo cloud on the daily chart). In addition, bulls of the US dollar will hardly allow the British pound to jump above the mentioned level at least in the medium term. The fact is that the recent Fed's meeting pushed the greenback higher. The Fed announced its decision to reverse the QE program as early as in November. Initially, the regulator planned to wind down from a period of monetary stimulus in December. Notably, in 2023, the Fed intends to raise the key interest rate three times. What is more, now, more economists support the idea of a key rate hike in the following year.
From the technical point of view, we can see that bears are controlling the market. However, the price may touch the level of 1.3750. On the daily chart, the price is between the middle and upper lines of the BB indicator, and below all the lines of the Ichimoku indicator. Thus, in the medium term, the pound/dollar pair is likely to continue hovering within the range of 150 pips between the levels of 1.3600-1.3750. If the price approaches the upper limit of the range, it is better to open sell positions with the target of 1.3700 and 1.3650. If the price approaches the 36th pattern, it is possible to go long with the targets at 1.3700 and 1.3750.
