GBP/USD remains stuck between two key DMAs ahead of central banks’ bonanza

• GBP/USD starts November on the right footing amid USD weakness, risk flows.
• Fed and BOE are set to hike policy rates by 75 bps each this week.
• Cable is likely to extend range play between 100 and 50DMAs.

GBP/USD is consolidating the rebound above 1.1500 so far this Tuesday, kicking off November on the right footing. Investors brace for the critical Fed and BOE rate hike decisions, with both the central banks set to announce 75 bps rate increases later this week.

Ahead of the central banks’ bonanza, investors are breathing a sigh of relief, thanks to the FX market repositioning and the rally in Chinese stocks. The risk-on market environment is boding well for the higher-yielding pound sterling at the expense of the safe-haven US dollar.

Attention turns towards the US ISM Manufacturing PMI release, although not much reaction is expected on the data release unless the figure disappoints expectations by a wide margin. Meanwhile, the UK S&P Global Final Manufacturing PMI improved to 46.2 in October vs. 45.8 expected and the first reading of 45.8.

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US: Weekly Initial Jobless Claims decline to 222K vs. 240K expected

Initial Jobless Claims fell by 6,000 in the week ending September 3.

US Dollar Index clings to small daily gains 109.50.

There were 222,000 initial jobless claims in the week ending September 3, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week's print of 228,000 (revised from 232,000) and came in better than the market expectation of 240,000.

Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1% and the 4-week moving average was 233,500, a decrease of 7,500 from the previous week's revised average.

"The advance number for seasonally adjusted insured unemployment during the week ending August 27 was 1,473,000, an increase of 36,000 from the previous week's revised level," the DOL said.

Market reaction

The greenback stays resilient against its major rivals after this data with the US Dollar Index posting small daily gains at 109.60.

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EUR/USD remains unfazed around parity post-ECB rate decision

EUR/USD keeps the daily range around the parity zone.

ECB raised its key rates by 75 bps, matching previous estimates.

The ECB now sees the region’s economy expanding 3.1% in 2022.

The single currency now alternates gains with losses and motivates EUR/USD to keep hovering around the parity region after the ECB raised rates on Thursday.

EUR/USD now focuses on Lagarde

EUR/USD keeps the daily range after the ECB raised the interests rates by 75 bps, as widely expected. That said, the interest on the main refinancing operations, the interest rate on the marginal lending facility and the deposit facility are now at 1.25%, 1.50% and 0.75%, respectively.

In its statement, the ECB predicts that further interest rate hikes are on the table over the next several meetings aimed at undermining demand and tackle upside risks in inflation expectations.

The updated macroeconomic projections now forecast inflation to rise at an average 8.1% this year, 5.5% in 2023 and 2.3% in 2024. Back to the economic growth, the bank’s staff now sees the region expanding 3.1% in 2022, 0.9% in the next year and 1.9% in 2024.

Moving forward, market participants will now closely follow the usual press conference by Chairwoman Lagarde and the subsequent Q&A session, while the speech by Fed's Powell will also grab investors' attention.

What to look for around EUR

EUR/USD now clings to the parity region ahead of the always important press conference by Chair Lagarde after the ECB delivered a widely anticipated 75 bps rate hike.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence. The latter, in the meantime, keeps closely following the prevailing debate around the size of the next interest rate hikes by both the ECB and the Federal Reserve.

On the negatives for the single currency emerge the so far increasing speculation of a potential recession in the region, which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals.

Key events in the euro area this week: ECB Interest Rate Decision, Lagarde press conference (Thursday) – Eurogroup Meeting, Emergency Energy Meeting (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. Fragmentation risks amidst the ECB’s normalization of its monetary conditions. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook.

EUR/USD levels to watch

So far, the pair is gaining 0.06% at 1.0005 and faces the next resistance at 1.0090 (weekly high August 26) ahead of 1.0161 (55-day SMA) and then 1.0202 (August 17 high). On the other hand, a drop below 0.9863 (2022 low September 6) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2002 low).

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