The GBP/USD pair is keeping its range around 1.1500, as investors await the energy relief measures due to be rolled out by the new UK PM Liz Truss. The US dollar struggles to find demand amid weaker yields, as all eyes remain on Powell’s speech.
While testifying before the UK Treasury Select Committee on Thursday Bank of England Chief Economist Huw Pill noted that if they observed quantitative tightening (QT) too much tightness in policy, they could offset that with fewer interest rate increases.
On a slightly dovish note, BOE policymaker Silvana Tenreyro said that a more gradual pace of tightening would reduce the risk of overshooting.
Following these comments, GBP/USD touched its weakest level since March 2020 near 1.1400 on Wednesday. With the improving market mood limiting the dollar’s gains in the second half of the day, the pair reversed its direction but buyers remain hesitant to commit to additional pound gains.
The ECB is expected to hike its policy rate by 75 basis points (bps) on Thursday. In case the bank adopts a hawkish outlook and reassures markets that it will remain on an aggressive tightening path, capital outflows out of the dollar could help GBP/USD push higher. It’s worth noting, however, that such a market reaction could lead to a big jump in EUR/GBP and cap GBP/USD’s rebound.
In the American session, FOMC Chairman Jerome Powell is scheduled to speak as well. According to the CME Group FedWatch Tool, markets are currently pricing in an 82% probability of a 75 bps Fed hike in September. This market positioning suggests that the dollar doesn’t have a lot of room on the upside even if Powell were to reaffirm another oversized rate increase at the next meeting.
In the meantime, UK PM Truss will reportedly announce that they will freeze energy prices for households to help them with rising costs.