GBP/USD: Carney Drops The Cable

The Cable tumbled to 1.5607 on Friday afternoon, its lowest valuation since early September 2013, following a dovish Bank of England (BoE) Inflation Report on Wednesday encouraging investors to continue closing Sterling positions for the remainder of the week. It was always likely that the BoE downgrading economic projections alongside signaling that no rate rises anytime soon would have bearish implications on the GBP, but it was the Bank’s admission that inflation would fall below 1% within six months that unsettled the markets. Overall, the general consensus at present is that previous optimism there could be an interest rate rise in Spring 2015 is just wishful thinking.

With the Inflation Report leaving investor appetite towards the Sterling crumbling, investor attraction towards the GBP is not expected to return for some time. As has been the case for the past couple of weeks, any noticeable GBPUSD moves to the upside is likely to be due to US Dollar profit-taking encouraging risk appetite in the currency markets.

Although it is not expected that either of the two dissenters within the Monetary Policy Committee (MPC) switched their votes last month, BoE Governor Carney again reiterating strong views on weak price pressures or slowing economic momentum during Wednesday’s release of the BoE Minutes could pressure the Sterling. Aside from an unexpected hawkish Fed comment intensifying demand for the Dollar, the major downside risk for the Cable is Tuesday’s inflation report. Even though the BoE suggested UK CPI would fall below 1% within six months, CPI is already at 1.2% and with PMIs (Services) slowing more than expected coupled with the drop in commodity prices, UK inflation may even be announced below an annualised 1% as early as this week.

In reference to the technicals on the Daily timeframe, investors closing USD positions on Friday evening have allowed the pair to navigate itself back inside the wedge pattern. To continue trading within the wedge pattern, further consolidation is required. Potentially weak UK CPI on Tuesday would most likely inspire further GBP/USD selling and lead to the downside moves towards the 1.5662 and 1.5618 support levels. As mentioned above, no increased appetite towards the GBP is expected but further US Dollar profit-taking would encourage the pair to advance towards resistance around 1.5780.


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