Pound Turns Weak As BoE Confirms Gradual Rate Hikes

Pound Turns Weak As BoE Confirms Gradual Rate Hikes
March 27, 2018

 
Last week, the British Pound rose against the greenback when the minutes of the March meeting revealed that two members of the Bank of England’s Monetary Policy Committee have voted in favour of an interest rate hike in March. While the market was expecting a 7-0 decision in favour of keeping the interest rates unchanged, Saunders and McCafferty voted in favour of a rate hike, citing  a pickup in wage growth. The Forex market reacted quickly by pushing the Pound higher against the greenback. Additionally, Deutsche bank, one of the world’s largest currency dealers, mentioned to their clients that they have a bullish view of the Pound. This aided the uptrend. However, the GBPUSD pair, which is currently trading at about 1.4230 levels is expected to decline in the week ahead due to reasons given below.

The Forex market pushed the Pound upwards based on support for a rate hike by two members of the rate setting committee. However, a relook at the minutes of the March meeting will reveal that the Committee has decided that future interest rates would be gradual and limited. This is in line with the previous guidance. Therefore, the Forex market is expected to give back the gains in Pound this week.

Samuel Tombs, Chief UK Economist with Pantheon Macroeconomics, is of the opinion that the markets may soon become disappointed if they expect a rate hike in May.

Tombs stated “Ignore the split rate vote; the real news is that the Committee has chosen not to signal an imminent rate rise as clearly as it did last year. Back in September – the meeting before it hiked rates in November – the Committee said it would hike ‘over the coming months’. Today, the Committee has not given any time-bound guidance.”

Soft retails sales figures, below-consensus PMIs, and February’s inflation rate of 2.7%, versus Committee’s forecasts of 2.9%, has considerably decreased the chances of a rate hike in the UK. Therefore, the Pound, which rose last week, mainly with the expectation of a rate hike is expected to decline in the days to come. In case of the greenback, the solid increase in the core durable goods order has turned the sentiment bullish towards the currency.

After two consecutive months of decline, the orders received by the US factories for business equipment recorded a 1.2% m-o-m increase in February. Analysts had expected a 0.5% increase in core durable orders. Last month, the core durable orders declined 0.2%.

Nonmilitary capital goods orders, excluding aircraft, increased 1.8%, versus economists’ expectations of 0.9%. It is the biggest increase since September. In January, non-military capital goods orders declined 0.4%. Orders for durable goods, which are meant to last at least three years, increased 3.1%, compared with a 1.6% gain expected by analysts. In January, orders for durable goods declined by 3.5%. Based on the facts discussed above, we expect the GBPUSD pair to decline in the days to come.

Technically, the GBPUSD currency pair is facing resistance at 1.4230. The stochastic indicator is in the overbought region. Therefore, we are expecting a decline in the currency pair. On the downside, the next major support exists only at 1.3990. Therefore, it would be better to stay short in the counter.

GBPUSD - Technical Analysis - 27th March 2018

We, as a Forex trader, would like to open a short position in the GBPUSD pair near 1.4230. To minimise risk, we would certainly place a stop loss order above 1.4280. When the pair starts declining, we would place a cover order near 1.4060.

Additionally, we may also invest a portion of our surplus money in a put option contract. Before investing, we will make sure that the binary broker offers a contract with an expiry period of one week. Furthermore, we would proceed only if the GBPUSD pair trades near 1.4230 in the Forex market.

 

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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