Pound Strengthens On Hint Of Rate Hike By BoE Governor

Pound Strengthens On Hint Of Rate Hike By BoE Governor

 

The US Dollar weakened last week after the minutes of the FOMC (Federal Open Market Committee) meeting failed to give fresh boost to the greenback. The Pound, in the meanwhile, strengthened on better-than-anticipated IHS Markit services industry PMI of 55.1 for June, compared with 54.0 previously. Economists had expected the index to remain unchanged at 54, following a dramatic reversal from lows seen in May. Based on these developments, the GBPUSD pair closed at 1.3270. We anticipate the uptrend to continue due to the facts provided below.

The Pound got an unexpected boost from the Bank of England’s governor Mark Carney, who cited bad weather as the reason for the poor performance of the economy in the first-quarter. While speaking to an audience in New Castle, England, Carney told that a number of indicators are reflecting a rebound in spending and household sentiment. The Bank of England shied away from raising interest rates during the monetary policy meeting held in May, mainly on concerns of weak economic growth. The change of tone from “hold” to “hawk” is aiding the Pound to become stronger. The market is now giving higher chances of a rate hike in August. A rate hike generally makes the currency more attractive to investors.

The US economy remains strong. However, it faces two major issues because of which the currency has turned weak. Last Friday, the Bureau of Labor Statistics reported that the US non-farm sector added 213,000 jobs in June, down from 244,000 jobs in the previous month, but better than analysts’ expectation of 195,000 jobs. However, the unemployment rate has increased from 3.8% to 4% in June. Analysts expected the unemployment rate to remain unchanged at 3.8%. More importantly, the average hourly earnings growth declined to 0.2% m-o-m in June, from 0.3% in the earlier month. Economists did not expect any change in the wage growth. On an annualised basis, the wage growth declined to 2.7% from 2.8% in May. Soft wage growth is the first reason that turns the greenback weak.

The second reason, obviously, is the looming trade war between the US and China. The recent FOMC meeting minutes indicate that the rate setting committee is both optimistic about the economic outlook and concerned about it. Tax cuts have made the economy stronger, while the trade policy of the White House has toughened trade relations between the US and other countries. This gloomy sentiment created by the trade policy is keeping the greenback weak. Therefore, fundamentally, the GBPUSD pair is expected to rally in the short-term.

Technically, the GBPUSD pair is trading above the 50-day moving average. The oscillator of moving average has turned positive. The major support and resistance levels are 1.3230 and 1.3430. Therefore, we can expect the rally to continue.

GBPUSD - Technical Analysis - 10th July 2018

We are planning to open two positions: one each in the Forex and binary market. We prefer to enter and exit near 1.3240 and 1.3410 in the currency market. To limit risk, we wish to place a stop loss order below 1.3140.

Simultaneously, using our binary options trading account, we may invest in a call option. The option contract should remain active for a period of one week. Furthermore, we may use one-third of our surplus funds to purchase the option only if the GBPUSD pair is trading near 1.3240 in the currency 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.


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