The Pound Stalls at 1.3000 to the Dollar
The Pound to Dollar rate is trading at 1.2925 at the time of writing, marginally down on the day as traders square positions ahead of the Bank of England (BOE) Rate meeting and Inflation Report scheduled for ‘Super Thursday’.
The BOE meeting is not expected to result in any change in policy but analysts have been speculating about the possibility of another hawk joining Kirsten Forbes in voting for a rate hike.
If that happens it will boost the Pound.
The Inflation Report, meanwhile, is expected to show a downwards revision to growth forecasts according to analysts at Intesa San Paulo, which would offset any positivity for the Pound from the disquisition of voting, as it will make it much harder for the BOE to raise interest rates.
Inflation without growth is the bugbear of central banks.
Sterling Traders were non-plussed by data overnight showing Retail Sales rose the most in 11-years after it was mostly put down to the timing of Easter.
The boost the Pound gained after the release was short-lived particularly against the Dollar which rose due to positive commentary from a Fed officials further endorsing the likelihood of a June rate rise.
GBP/USD reached a peak at 1.2990 yesterday but then pulled back.
Rabobank’s Jane Foley sees 1.3000 as a key psychological level which will be difficult to overcome.
The pair has lost the initial impetus it gained from short-covering – that is traders hurrying to close their sell bets – but now lacks any real new reason to actually go higher, said Foley to Reuters.
Analysts at Barclay’s Capital shared Foley’s respect for the resilience of 1.3000 and put the pressure on the pair down to Fed speakers of which there will be more this evening, including Fed’s Kashkari and voting member Kaplan.
“GBPUSD made new recent highs of 1.2990 (Bloomberg), before retracing 60 pips as the USD traded with a more bid tone following Fed speakers. With mixed two-way flows and no consistent theme, our traders think GBPUSD momentum will continue to stall ahead of 1.3000, whilst support remains at 1.2830 and 1.2750,” said Barclays Capital in a note to clients.
Technicians are cautiously bullish, with Commerzbank’s Karen Jones saying, “GBPUSD’s near term outlook is neutralising.”
She highlights the divergence between RSI and the exchange rate, however, as a possible sign a pull-back is on the horizon.
We continue to see more upside as the more likely eventuality.
Our minimum target is 1.3140 based extrapolating the height of a triangle pattern the pair formed since the October lows, has still not been reached.
The declines seen on Monday and so far on Tuesday are insufficient to make us turn bearish the pair.
The Pound is also long-term undervalued against most models of fair value and therefore more likely to rise rather than fall.
Positioning in the futures market still shows a net negative position on GBP which is usually interpreted and meaning the opposite will come to pass.
