Pound Sterling Sell-Off Extends
The British Pound is seen falling against both the Euro and the US Dollar on the morning after the Bank of England (BOE) rate meeting and the release of the quarterly Inflation Report.
The report trimmed forecasts for growth to 1.9% (from 2.0% prev) and the meeting showed the same voting pattern of 1 dissenter versus the rest agreeing as previously – the overall interpretation being that it was a marginally more negative assessment.
This combined with the slowdown in the retail sphere in 2017 led many traders to sell the Pound following the meeting.
The offered tone has continued this morning, with the Pound to Euro exchange rate falling from 1.1863 to 1.1842, but it is most marked in the Pound to Dollar exchange rate pair, which fell from 1.2888 to lows of 1.2854.
If GBP/USD can successfully break below the 1.2830 level, that will add even more conviction to the decline.
“First attempts to break channel support cleanly have failed. However, while rebounds hold under 1.2920 we are biased for renewed weakness. A break of the 1.2830 previous reaction low and then 1.2735 daily trend support below would add real conviction that a top has developed around 1.3000,” said Robin Wilkins of Lloyd’s Commercial Banking.
Hawkish Elements
Despite sterling’s weakness following the BOE meeting, not all the BOE’s communication was negative.
The BOE upgraded its expectations of wage growth, investment and exports, for example, although according to Barclays, “the Governor described these as still suboptimal and not yet in line with the Bank's inflation objective.”
Do these hawkish elements point to a bringing forward of rate hike expectations and a recovery in the Pound?
Not according to Investec who didn’t see enough evidence to suggest a move on rates anytime soon:
“There are some slightly hawkish elements to the information presented. However on balance we do not see the communications pointing to an MPC that is preparing for a near-term rate move, not least because of the headwinds and uncertainty of Brexit. These, less quantifiable aspects, are likely to leave the Governor in a relatively risk-averse mode, favouring a steady policy path as the UK moves through its EU exit negotiating period.”
The Pound is not likely to see a rebound due to these hawkish elements coming to the fore, therefore.
Day Ahead – USD Front and Centre
The main release of the day will be US inflation in April and US Retail Sales out at 13.30 (UK time) during the US session.
Headline CPI is expected to rise by 0.2% mom and 2.2% yoy and Core by 0.2% and 2.0% respectively, but any unexpected rises could spur more selling of GBP/USD.
German Industrial Production has already come out above consensus at 0.6% and Eurozone-wide Industrial Production will be out latter this morning.
