Bailey Reaffirms Rate Guidance, Government Headwinds Stack Up

GBP/USD sits 15 pips or so higher on the day into London dealing, last sitting just above $1.3710.

• To recap, GBP/USD's early downtick reversed during the London morning on Monday, with the cross topping out ahead of a speech by BoE Governor Bailey but holding within the range witnessed on Friday.
• Bailey reaffirmed the messaging on interest rates from last week's monetary policy decision, noting that "it follows that the monetary policy response, if we need to make one, to the inflation pressure should involve Bank Rate not QE. There is no reason to beat about the bush on this point…Monetary policy should not respond to supply shocks which do not become generalised through their impact on inflation expectations. In more modern times, and certainly in the life of the MPC, supply shocks have tended to be temporary in terms of their impact on inflation. But if that is not likely to be the case in our assessment, we will step in and adjust policy as needed. Nothing has changed in our approach."
• Elsewhere, short term petrol supply worries and the cost of heating and electricity through winter remain at the fore when it comes to local press reports. Which, when coupled with a removal of a COVID-related income support top up, the removal of the furlough scheme and higher national insurance payments from the start of the next fiscal year, poses headwinds to consumption.
• Resistance for the pair is initially located at the 20- & 50-day EMAs ($1.3743/89), with not much in between there and key resistance in the form of the Sep 14 high ($1.3913). Support comes in at the triangle base drawn from the Jul 20 low we have flagged previously ($1.3637).
• Tuesday's local UK docket is headlined by a panel appearance from BoE's Mann, while the aforementioned fuel supply issues will continue to dominate the airwaves in the UK.