Sterling Takes a Back Seat Ahead of FOMC, BoE with Lots to Consider

Pound Sterling GBP/USD, EUR/GBP Analysis

• Liz Truss enjoys healthy lead in the polls after last night’s televised debate
• Reuters poll suggests market expectations of a 50 bps hike from the BoE is not as clear cut as data suggests
• GBP/USD, EUR/GBP levels to consider ahead of US heavy event risk (FOMC, Q2 GDP)

Liz Truss Enjoys a Healthy Lead in the Polls in Race for PM

Yesterday saw the live televised debate between the remaining two candidates vying for Tory leadership. The debate was the first in a series which is to be broadcast in the coming days and weeks. With Liz Truss fairly comfortably in the lead according to polls, the debate represented an opportunity for Rishi Sunak to claw back some ground. The debate has been described by political commentators as effectively being a draw.

Source: Smarkets

25 or 50 bps? Possibly The Bank of England’s Toughest Decision Yet

The BoE is due to announce whether they will raise rates by 0.25% or 0.50% but chances of a more dovish 25 bps have gained some momentum. According to a Reuters poll, 54% of respondents anticipate a 25 basis point hike while 45% think we will see a 50 bps hike. Those anticipating 50 bps may point to relatively strong PMI data out of the UK last week compared to the EU and US equivalents, not only avoiding contractions in services and manufacturing, but also managing to beat estimates. Room for a bearish repricing remains a possibility for the pound as markets are currently pricing in around 47 bps for August the 4th.

Cable (GBP/USD) appears to have lost its recent upward momentum, although sch moves appear to be tracking a softer USD. The pair broke below the psychological 1.2000 level with support around 1.1920 before the swing low of 1.1760. Resistance of 1.20 flat remains a challenge and any further upside potential for GBP/USD comes in at 1.2155.

GBP/USD Daily Chart

Source: TradingView, prepared by Richard Snow

European Concerns Come to Fruition

Germany’s economy minister warned that Russia may use some technical excuse to justify future reductions in gas flows after Nord Stream 1 came back online after scheduled maintenance. The EU proposed a 15% reduction in gas usage which was met with stern resistance. The fact that Russia, earlier this week, reduced gas flows from 40% of the desired amount to 20% must have motivated the bloc to approve the emergency gas plan which makes certain concessions.

The Euro area also sees the first print of Q2 GDP and inflation data for June this week.

EUR/GBP continues the recent decline, now passing below a level that supported the pair for parts of 2021 (0.8470). Support appears at 0.8450 before the swing low of 0.8410. Resistance comes in at 0.8470 followed by the psychological level of 0.8500.

EUR/GBP Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX