Pound Sterling Volatile, Bank of England MPC Give Testimony

Live GBP Exchange Rates:

vs EUR:
1.2024
vs ZAR:
22.7019
vs USD:
1.2532
vs NZD:
2.1478
vs AUD:
1.9231
vs CAD:
1.7483

16:04: 1.6750 could still happen

"Pound is moving inside consolidation channel; market is going to continue this correction. We think, today price may form the third wave of this correction by falling down towards lower border of this trading range and reaching level of 1.6560. Later, in our opinion, instrument may return to level of 1.6750." - RoboForex.

15:42: Sterling under-performance continues

Piet Lammens at KBC Markets notes:

"The UK currency drifted lower as several BoE members attended a hearing on the inflation report before the Treasury committee of the UK parliament.

"Governor Carney said that he estimated the spare capacity in the UK economy slightly higher than the 1.0%/1.5% indicated last month. Sterling lost some further ground after these dovish comments. However, Carney’s view was not shared by all his colleagues. Whatever, EUR/GBP came again within reach of the 0.8350 resistance. Cable filled bids in the 1.66 area, but a real test of the 1.6583 ST range bottom didn’t occur."

14:54: Commerzbank still back the £ over the €

It's been a tough week for the UK currency, but analyst Karen Jones at Commerzbank says she continues to back the UK unit:

"While capped here (0.8348/49) and by Monday’s 0.8350 high, we will maintain our medium term negative bias. The odds favour at least a short-term break higher, though, in which case the 0.8391 late December high could be hit before the currency pair heads back down again. We look for a re-test of the 55 day moving average at 0.8272 and the 0.8253 December low in the first instance."

14:42: NIESR estimate GDP less than 1% below pre-recession peak

The NIESR monthly estimates of GDP suggest that output grew by 0.8 per cent in the three months ending in February after growth of 0.7 per cent in the three months ending in January 2014.

This implies that output is less than 1 per cent below its pre-recession peak (January 2008) and we expect this peak will be recovered over the course of 2014. NIESR do not anticipate that the Bank of England's MPC will adjust interest rates until the second quarter of 2015.

13:53: British pound at risk of steep sell-off

Now we hear from Schlossberg's colleague, Kathy Lien. This is interesting as she called this one on the AUD rally seen last month:

Regarding the extended long positioning in GBP-USD:

"Current positions are near their 5-year extremes, which makes GBP/USD particularly vulnerable to a sharp sell-off. In this chart, we highlighted points of reversal in positioning and how they have corresponded with nasty reversals in the GBP/USD. Coincidently, positioning topped out not far from current levels in past years. With only the trade balance report scheduled for release this week, additional profit taking could drive GBP/USD below its 3 week low of 1.6585, which would pave the way for a move down to 1.64."

13:40: Outlook for £ remains constructive

What can we glean for the £ from the MPC's appearance in front of the UK parliament today?

Boris Schlossberg at BK Assset Management has the following:

"Cable also remained steady holding above the 1.6600 mark as BoE Governor Carney testified in front of Parliament. Mr. Carney once again tried to dampen interest rate expectations as he noted that any rate hikes will be gradual and limited in nature. The BoE is keenly aware of cable recent strength which it considers to be a threat to the UK recovery especially the country's export sector. Nevertheless, UK economic performance appears to be expanding at a steady rate and markets anticipate that the BOE will be the first amongst the G-7 to hike rates, which should continue to provide support for sterling."

12:33: UK currency reversing momentum

Ipek Ozkardeskaya expresses surprise at the reverse in fortunes being suffered by the UK currency:

"GBPUSD extended weakness to 1.6615 this morning amid the industrial and manufacturing production data showed slightly lower-than-expected performance in January. Although the recovery has been slightly slower, the industrial and manufacturing production expanded at the faster pace of 2.9% (vs. 1.8% last) & 3.3% (vs. 1.5% last).

"The negative knee-jerk reaction in GBP (hardly justified) warns of building selling pressures in sterling. The issues on BoE FX manipulation clearly keep the negative pressures tight on sterling. Technically, the Cable’s MACD (12, 26) stands in the red zone, offers pre-1.6668 (former fibo 100% & 21-dma ) keep the upside limited."

11:43: Fresh selling pressure on sterling

It's been a roller-coaster of a morning. The pound is now under selling pressure once again with GBP-USD now testing key support at 1.60. There is no overt cause. The MPC testimony is ongoing, but there is no real headline thus far.

11:40: FX in late morning

"The USD is trading mostly higher so far today; the AUD and NZD are, however, both posting gains against all their G-10 peers. The European currencies are under-performing broadly, lead by the CHF but closely followed by the EUR which is giving up more of last week’s post-ECB gains. Asian equities were modestly higher but European markets have slipped into the red, pulling US futures down. Gold and oil are slightly firmer. It’s not really risk off but it’s not really risk on either." - Shaun Osborne at TD Securities.

10:25: GBP-EUR in recovery mode

A couple of things have pushed the GBP-EUR higher:

1) Mark Carney tells Parliament, "its best to adjust interest rates by more than 0.25% before reversing QE." This part of an on-script appearance, markets will be relieved that no 'bearish' tones have been expressed.

2) The ECB appears a little taken aback by the strength of the Euro's gains following on from last week's ECB meeting. We hear ECB member Constancio saying market did not completely take in the message from the March meeting. He says the ECB have tools on the table including rate cuts and QE. Will the ECB now take a more dovish tone from here to temper expectations?

09:33: Carney, MPC Testimony Live

Click below to watch the important appearance of key MPC members before the UK parliament:

09:32: GBP in muted reaction to IP data

IP data hasn't provided a boost to the UK currency. Today's ONS releases were all well in growth territory, but crucially markets wanted a little more.

Industrial Production (YoY) (Jan): 2.9% vs 3.0% expected and 1.9% last month.
Manufacturing Production (YoY) (Jan) 3.3% vs 3.3% expected and 1.4% and 1.9% last month.

08:57: Be prepared for MPC appearance before Treasury Select Committee

Apart from the Industrial Production data, we also have MPC members appearing before parliament.

Jeremy Cook at WorldFirst says:

"There may have been some sterling selling as well ahead of Carney’s testimony in front of the Treasury Select Committee due this morning. Carney – alongside Paul Fisher, David Miles and Martin Fisher – will testify in front of MPs on the changes to forward guidance outlined in the recent Quarterly Inflation Report. However, the pointed questions will more likely revolve around accusations that the Bank of England was complicit in some form of abuse in currency markets. We would wager that this will be Carney’s most uncomfortable appearance in front of TSC."

08:33: Are markets positioning away from the pound sterling?

An interesting comment from Piet Lammens at KBC Market suggests markets are no longer too keen on the UK currency:

"Last week, sterling held reasonably strong both against the euro and the dollar even as chances on additional ECB easing declined substantially after the ECB policy decision and as the dollar found a better bid after the US payrolls. However, this constructive sterling sentiment evaporated today. Sterling fell prey to a long squeeze, both against the euro and the dollar.

"We didn’t see an exact trigger. Technical considerations might have played a role as EUR/GBP did break above the 0.8300 barrier. In cable the topside had become tough as the 1.6823 resistance was/is a hard not to crack. M&A related news might have played a role, too (Vodafone reached a deal to buy Spanish cable group Ono).

"BoE’s Bean in a speech warned that further sterling strength wouldn’t be particularly helpful for UK exports. Sterling lost a few more ticks after these headlines but at that time most of the intraday losses were already on the screens. Whatever the reason, sterling faced a substantial setback. EUR/GBP tried a test of the 0.8350 range top, but a real break didn’t occur (yet)."

08:29: Outlook for sterling dollar exchange rate hit by negative technical signals

The extent of yesterday's decline in the pound dollar exchange rate were such that at last night's close of 1.6642 3 bearish technical signals formed.

This warns that the near-term outlook is likely to be negative. The tree are:

1) Short-Term Bearish Momentum
2) Short-Term Bearish Price Crosses Moving Average (21-day)
3) Short-Term BearishWilliams %R

Below: Momentum behind the Cable has taken a turn for the worse.

08:20: Soft tone to persist

08:13: Industrial Production Data Dominates Outlook

There has been little to guide the British pound over the past 24 hours, however Tuesday will bring with it some data from the UK's manufacturing sector.

"industrial output data will likely attract some market interest this morning. The market is expecting a modest rise in both industrial and manufacturing activity in January. However, while our economists expect marginally firmer manufacturing activity, they forecast wider industrial activity to have stagnated in January, mainly reflecting a further decline in mining activity," say Lloyds Bank.