GBP/USD outlook: quietly consolidating while uptrend remains intact

GBP/USD consolidates

After rejecting resistance at $1.37 last week, GBP/USD looks to be consolidating around $1.36 as G10 FX struggle for direction. Yesterday’s dip below the 21 displaced moving average (DMA) may have suggested a short-term top at $1.37.

However, with the pair managing to close above the 21DMA the broad uptrend remains intact for now. On the UK front, newsflow has been relatively light, although coronavirus cases look to be moving in the right direction and the vaccine rollout has been a rare success for the government, keeping the pound underpinned against the euro.

BoE downplays negative rates

In light of the third national lockdown, negative rates had once again come back into the spotlight. Bank of Englang’s (BoE’s) Silvana Tenreyro continued to remain in favour of the negative interest rate policy (NIRP), noting that theoretically, rates could go to -0.75%.

With BoE governor Andrew Bailey stating that negative rates are a controversial issue, a slight hawkish repricing in OIS markets had kept the pound better bid on the crosses. Looking ahead, BoE’s Haldane is due to speak from 18:00 GMT, while commentary on negative rates will be closely watched, given that Haldane is among the most hawkish on the Monetary Policy Committee (MPC) it is likely that he will also downplay negative rates.

Upcoming pound risk events

• 20 January 2021: UK consumer price index (CPI)
• 22 January 2021: UK purchasing managers’ index (PMI) and retail sales