Despite quite hawkish commentaries by Mark Carney, GBP/USD is falling. What's wrong with the pound?
The UK CPI index matched estimates at 3.0% yoy and 0.3% mom. Core inflation index, excluding food and energy, came in at 2.7% yoy. This data has not impressed the markets. However, GBP/USD made a good move, touching today’s highs at 1.3280, but later retreated to 1.3258 area.
This was just the beginning of the pound’s selloff. Also noteworthy is the fact that two of the MPC members made really dovish remarks on monetary policy. Silvana Tenreyro said the MPC was far from the point when it would unwind QE. Her colleague sir David Ramsden emphasized no QE reduction should be expected until the bank rate moves higher.
Still, the markets looked at Mark Carney who, on the one hand, said a rate hike would be appropriate in the upcoming month, but on the other, he highlighted that the depreciation of GBP was the sole reason for the rise in inflation. So, the regulator is painted into a corner and will have to make a choice between inflation and further economic stimulus.
The GBP has already reached the 1.3180 level where the pair may find some bids. If not, the next target is September, 11 lows near 1.3160. Only a clear break of 1.33 will erase the current bearish sentiment.