Pound Remains Under Pressure After BoE Rate Decision

GBP/USD has posted losses on Friday, as the pair currently trades at the 1.32 line. On the release front, the US will release CPI and the UoM Consumer Sentiment report. The estimate for CPI is a weak gain of 0.1%, and UoM Consumer Sentiment is expected to improve slightly to 91.0 points. There are no British releases on the schedule.

As widely expected, the Bank of England remained on the sidelines on Thursday and held interest rates at a record low 0.25%. This follows a dramatic quarter-cut point in August, the first such move since 2009. The BoE acknowledged that the UK economy had not softened as much as expected after the Brexit vote. However, the bank added that it was prepared to cut rates in November if the bank’s August forecast did not improve by that time. In a Reuters poll released on Thursday, most analysts surveyed said they expected a 0.15% cut in November if UK growth remains modest, which would lower rates to just 0.10%. The BoE made no changes to the asset-purchase scheme, after significantly expanding the program in August. Overshadowed by the BoE rate announcement, retail sales contracted 0.2% in August, better than the forecast of a 0.4% decline. This follows an excellent July reading of a 1.4% gain, compared to a forecast of 0.1%. However, unusually hot weather in July was the likely reason for the spike in consumer spending.

US retail sales reports for August disappointed the markets. Retail Sales, the primary gauge of consumer spending, declined 0.3% in August, marking its first decline in five months. There was no relief from Core Retail Sales, which fell 0.1% and missed expectations. These weak numbers, which point to softer spending by the US consumer, have reduced the likelihood of rate hike in 2016 – a September hike is currently priced in at 12%, while the likelihood of a December move has fallen to 40%. These numbers will likely shift after the release of CPI and consumer confidence numbers on Friday, but it appears a safe bet that a September rate hike is off the table.

With a crucial Federal Reserve policy meeting on September 21, the Fed has imposed a blackout period on public comments from FOMC members. Recent comments from FOMC members, which have been almost contradictory at times, have left the markets confused and reinforced the perception that the Fed remains pided regarding its near-future monetary policy. FOMC member Eric Rosengren recently came out in support of a rate hike, saying that “tightening is likely to be appropriate”, and went as far as to say that the US economy could overheat if the Fed didn’t act soon. Earlier this week, FOMC member Lael Brainard sounded much more cautious, saying it would be prudent to maintain a loose monetary policy. Brainard noted global uncertainties and weak inflation as reasons for the Fed not to rush into raising rates.

GBP/USD Fundamentals

Friday (September 16)

  • 8:30 US CPI. Estimate 0.1%
  • 8:30 US Core CPI. Estimate 0.2%
  • 10:00 US Preliminary UoM Consumer Sentiment. Estimate 91.0
  • 10:00 US Preliminary UoM Inflation Expectations
  • 16:00 US TIC Long-Term Purchases. Estimate 30.2B

*All release times are EDT

* Key events are in bold

GBP/USD for Friday, September 16, 2016


GBP/USD September 16 at 5:55 EDT

Open: 1.3245 High: 1.3247 Low: 1.3190 Close: 1.3200

GBP/USD Technicals

  • GBP/USD showed limited movement in the Asian session. The pair has posted slight losses in European trade
  • 1.3142 is providing support
  • 1.3219 was tested earlier in resistance and could break in the North American session

Further levels in both directions:

  • Below: 1.3142, 1.3033 and 1.2899
  • Above: 1.3219, 1.3327, 1.3480 and 1.3667
  • Current range: 1.3142 to 1.3219

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged on Friday. Currently, long positions have a majority (54%), indicative of trader bias towards GBP/USD reversing directions and moving higher.

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