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FOREX: GBPCHF Breaks Above 50-day EMA as BOE Decision Awaited

FOREX
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  • Ahead of the BOE decision today, it is worth noting the continued outperformance of GBP in 2024. Sterling remains the strongest currency in the G10 basket against the dollar, rising 4.14% year-to-date. The outperformance is underpinned by CFTC positioning data, indicating that both asset managers and leveraged bets remain in firm bullish territory.
  • While the August inflation print was a bit softer than the BOE’s forecast, particularly for services prices, we don’t think it is weak enough for any MPC member to immediately change their underlying view. Furthermore, we still struggle to rationalize cuts of greater than 25bp for the BOE with inflation and wage growth at current levels.
  • Greenback swings have been volatile in the aftermath of the Fed decision, however, GBPUSD’s recovery this morning keeps the pair within close proximity of cycle highs, and the highest prints since March 2022.
  • One cross that stands out this morning is GBPCHF, with the Swiss Franc underperformance contributing to the cross breaking above the 50-day EMA, the first time since late July. Price action sees the cross approach the Aug 19 high at 1.1264 and continue its recovery from the carry unwind/risk off induced selloff in early August.
  • A positive reaction to today’s BOE could signal scope for a stronger recovery and may target a medium-term move towards 1.15, a psychological/inflection point over the past two years. Additionally, trendline resistance from the 2021 highs intersects just above the 1.15 handle, bolstering the technical significance of this area (see chart below).
  • Goldman Sachs believe GBP should still benefit from a coordinated easing cycle where the US avoids recession, and particularly like being long on crosses, particularly against CHF.
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  • Ahead of the BOE decision today, it is worth noting the continued outperformance of GBP in 2024. Sterling remains the strongest currency in the G10 basket against the dollar, rising 4.14% year-to-date. The outperformance is underpinned by CFTC positioning data, indicating that both asset managers and leveraged bets remain in firm bullish territory.
  • While the August inflation print was a bit softer than the BOE’s forecast, particularly for services prices, we don’t think it is weak enough for any MPC member to immediately change their underlying view. Furthermore, we still struggle to rationalize cuts of greater than 25bp for the BOE with inflation and wage growth at current levels.
  • Greenback swings have been volatile in the aftermath of the Fed decision, however, GBPUSD’s recovery this morning keeps the pair within close proximity of cycle highs, and the highest prints since March 2022.
  • One cross that stands out this morning is GBPCHF, with the Swiss Franc underperformance contributing to the cross breaking above the 50-day EMA, the first time since late July. Price action sees the cross approach the Aug 19 high at 1.1264 and continue its recovery from the carry unwind/risk off induced selloff in early August.
  • A positive reaction to today’s BOE could signal scope for a stronger recovery and may target a medium-term move towards 1.15, a psychological/inflection point over the past two years. Additionally, trendline resistance from the 2021 highs intersects just above the 1.15 handle, bolstering the technical significance of this area (see chart below).
  • Goldman Sachs believe GBP should still benefit from a coordinated easing cycle where the US avoids recession, and particularly like being long on crosses, particularly against CHF.