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GBP/USD is bouncing in early trade Tuesday after its losses over the past week that were prompted largely by safe-haven buying of USD on fears that the Chinese property company Evergrande is on the brink of default.
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The rally in GBP/USD could well continue near-term and, even if it falters and the pair turns down again, there is plenty of support around the 1.36 level.
GBP/USD RALLYING NEAR-TERM
GBP/USD is showing signs of recovery after its steep losses over the past week prompted largely by safe-haven buying of the US Dollar on fears that Evergrande, Chinas second-biggest property company, is close to going out of business.
It was those fears that prompted the recent “risk-off” mood in the markets that hit stock prices and other assets seen as risky, with volatility up sharply and the situation worsened by concerns that more companies could be targeted by Chinas regulators and that a Chinese economic downturn could be prompted.
For now its too early to say that the selling is over and that dip buying of stocks in particular will continue but valuations were stretched so it was a retracement that was largely overdue. As for GBP/USD it could easily turn lower again but even if it does there is support around the 1.36 level from the lows touched in mid-July and again in mid-August.
GBP/USD PRICE CHART, FOUR-HOUR TIMEFRAME (JULY 15 – SEPTEMBER 21, 2021)
BANK OF ENGLAND AHEAD
That said, both the Federal Reserve and the Bank of England have monetary policy meetings this week so no clear trend may emerge ahead of them. Meanwhile, UK economic data released Tuesday showed an even greater fall than expected in public borrowing, which dropped by £20.5 billion in August after dipping by a revised £6.9 billion in July. The latest figure had been expected at £15.6 billion.
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