British pound (GBP) extends gains, Sterling exchange rate complex kept aloft by interest rate hike expectations
- Written by: Gary Howes
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The pound sterling (GBP) extends gains against the US dollar and the euro on Wendnesday after Bank of England policymaker Ian McCafferty said market expectations of a rate hike in spring next year were "not unreasonable".
Sterling overnight interbank money market rates indicate the chances of a rate hike have been rising in recent days, and implies the chance of a rise in 15 months' time.
Today's GDP data release from the ONS proved to have little impact on the sterling exchange rate complex:
"With no top-tier domestic economic numbers to go on this week, February euro zone inflation on Friday will be watched for its potential to nudge the European Central Bank into easing policy," says a note from Pareet Patel at foreign exchange brokerage Afex.
Reiterating the central bank's comments earlier this month that market expectations of a rate rise in the second quarter of next year were consistent with keeping inflation close to target, McCafferty said "in that sense, you'd have to say that market curve is not unreasonable".
Sterling has been buoyant since the Bank earlier this month raised its forecast for 2014 economic growth to 3.4 percent from 2.8 percent.
Pound dollar exchange rate outlook for today
Turning to the technical charts for guidance, we note a break of the resistance at 1.6742 for the pound dollar exchange rate is needed to confirm the resumption of the underlying uptrend.
"Another resistance stands at 1.6823. Supports can be found at 1.6584 and 1.6426. In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 (17/12/2013 low) holds. The decisive break of the resistance at 1.6668 opens the way for a move towards the major resistance at 1.7043 (05/08/2009 high). However, a sustainable move above that level is unlikely in the next few weeks," says a note from Swissquote Bank.
Euro pound exchange rate outlook for today
Concerning the euro pound rate, analyst Piet Lammens at KBC Markets says:
"We maintain a sell-on-upticks approach for EUR/GBP in case of return action towards the 0.8350 resistance.
"We have a sterling positive bias longer term as the BoE will probably tighten policy (much) sooner than the ECB. EUR/GBP is captured in a gradual downtrend channel since mid-2013. Recently, we favoured short-term consolidation as some good news was already discounted and as UK eco data were slightly less buoyant.
"Early this month, the EUR/GBP cross rate tested the 0.8350 resistance as the ECB was less soft than expected. The resistance held and the rebound of sterling after the BoE inflation report brought EUR/GBP back to the bottom of the recent consolidation pattern. The key 0.8168/60 support was challenged but a sustained break didn’t occur.
"A break below this level would be an additional negative for EUR/GBP. Even as we have a sterling positive bias longer term, we stay cautious short-term as the UK data were slightly weaker. We keep a sell-on up-ticks bias."
