British pound drifts lower, markets eye Bailey testimony

• BoE Governor Bailey to testify before Treasury Committee on Thursday
• Fed says remains open to rate hikes
• JP Morgan expects Fed to cut rates

Will monetary hearings shake up British pound?

The Bank of England will be in the spotlight on Thursday, as Governor Bailey testifies before the Treasury Committee. Lawmakers will likely pepper the Governor with questions about red-hot inflation, which remains in double-digits despite the BoE’s aggressive tightening. The BoE remains optimistic that inflation will fall more rapidly but there is pressure on the BoE to ratchet up the rate hikes to 50 or 75 basis points, as it did last year. Bailey will have his work cut out as he attempts to convince lawmakers to patiently wait for the tightening to percolate through the economy and dampen inflation.

Bailey stated today at a public engagement that inflation remains much too high, and that he would tighten policy if there was evidence of stronger inflationary pressures. I expect Bailey to reiterate this stance before the Treasury Committee on Thursday.

The Federal Reserve continues to pump out the message that rate hikes are on the table but rate cuts are not in the cards. Richmond Fed President Tom Barkin and Atlanta Fed President Raphael Bostic said earlier this week that the Fed could hike rates if high inflation persisted. The markets still think that the Fed could cut rates before the end of the year, and JP Morgan said on Tuesday “the market is right to be penciling in cuts”, as inflation remains too high and the US was likely headed for a recession.

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GBP/USD Technical

• GBP/USD is testing support at 1.2475. The next support line is 1.2366
• 1.2604 and 1.2676 are the next resistance levels

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