GBP/USD hovers around 1.3250, UK/US PMI, BOE eyed

• GBP/USD consolidates weekly gains ahead of the key Bank of England monetary policy meeting.
• US dollar tracks yields post-Fed, market sentiment dwindles.
• UK delays Northern Ireland border checks for Brexit progress, British daily covid infections jump all time high.
• BOE policymakers remain divided over rate hikes, QIR, economic forecasts are the key.

GBP/USD takes rounds to 1.3255-60, down 0.07% intraday while paring the weekly gains heading into Thursday’s London open.

The cable pair rose the most in a week the previous day after the market’s surprise reaction to the US Federal Reserve’s hawkish halt. The reason could be linked to Fed Chair Jerome Powell’s comments like “the Omicron variant poses risks to the outlook”, as well as refrain from rate hikes until the tapering is completed.

That said, optimism surrounding Brexit could be considered additional support for the GBP/USD prices as Britain again pushed back the border checks on the goods from Ireland to the UK beyond January 01 deadline. The outcome may have links to European Parliament President David Sassoli’s comments cited by the UK Express who warned the UK it could face "severe consequences" in the trade deal row.

It should be noted, however, that the highest ever daily COVID-19 cases and fears of medical supply outage seem to weigh on the GBP/USD prices.

Adding to the upside filters is the mildly bid US Dollar Index (DXY) amid hopes of disappointment from the ECB and the BOE policymakers to the hawks amid worsening virus conditions in the bloc and the UK.

Even so, the recent jump in the UK Inflation to a decade high pushes policymakers at the “Old Lady” to keep bullish bias towards rate hikes in 2022. The same highlights today’s Quarterly Inflation Report (QIR) from the BOE.

Other than the ECB and the BOE, preliminary readings of the December month PMIs for the UK and the US will also be important for short-term GBP/USD direction. Given the upbeat expectations and a pending reaction to the hawkish Fed, the pair buyers are likely to witness hardships.

Technical analysis

GBP/USD remains inside the 140-pip envelope between the resistance-turned-support line from October and a descending trend line from late July, respectively around 1.3145 and 1.3285.

That said, the RSI recovery favors the GBP/USD pair’s earlier run-up. However, a clear upside break of the 1.3285 won’t be enough for the bulls to retake controls as 20-DMA and 61.8% Fibonacci retracement level of September 2020 to June 2021 upside adds to the upside filters around 1.3290.

On the flip side, a clear break of the 1.3145 will challenge the 1.3100 threshold before targeting the 78.6% Fibo. level near 1.3015. However, the quote’s weakness past 1.3015 will be questioned by the 1.3000 psychological magnet.