GBP/USD keeps lower on the day, trading around 1.3640-50 levels
The pair is keeping a downside push since failing to really gather much momentum above 1.3800 over the past two weeks, with the highs in October failing to threaten the 200-day moving average (blue line).
Since then, there has been some slight consolidation before the plunge on Friday last week and sellers are not really letting up just yet for now.
The latest drop this week sees the 38.2 retracement level @ 1.3673 taken out and that paves the way for a potential test of the 50.0 retracement level @ 1.3623 next.
Adding more woes for the pound is that even a BOE rate hike this week may not necessarily be of much help for the currency.
Sure, the market is split on a 15 bps rate hike but if that comes, it is largely a "preemptive" move to counteract rising inflation pressures by the central bank. Following which, expect policymakers to reiterate a more gradual and limited approach to the process.
Considering the move in gilts and what has been priced, I can see this playing out as a "buy the rumour, sell the fact" in the pound. There might be scope for a kneejerk reaction higher initially but I would expect gains to be contained.
That said, a lot will also depend on the dollar side of the equation and even more so since the Fed will come before the BOE this week.
A move by the Fed to make a clear distinction that tapering and rate hikes are not part of the same playbook could limit the dollar's potential, even if such a move is expected.
