GBP/USD: Hovers over 1.27 the figure following Conservative 5th ballot and BoE
- GBP/USD oscillates around the 1.27 handle in New York session.
- Bank of England disappoints the bulls; Sterling scales back gains from Federal Reserve interest rate decision.
GBP/USD has been oscillating around the 1.27 handle in Thursday's New York session so far, topping out at 1.2727. The pair was as low as 1.2628 in early Asia yesterday, but the dollar was beaten up on the back of the dovish outcome from the Federal Open Marke Committee overnight.
With the Federal Reserve decision out of the way, markets needed to get set for the Bank of England interest rate decision on Thursday. The outcome was less hawkish than expected which eventually weighed on Sterling. The Monetary Policy Committee, (MPC), left rates unchanged at 0.75% and there were no dissenters, even though there had been some speculation of a split vote. GBP/USD dropped from the highs to below 1.27 the figure on the outcome.
The statement noted that the downside risks to growth have increased due to trade tensions and Brexit uncertainties. The MPC also expects inflation to fall below the 2%-target later this year. However, the MPC still judged that a tightening of monetary policy at a gradual pace and to a limited extent would be appropriate, although there were no signals that a hike is n the horizon in 2019 or 2020.
Elsewhere, markets glanced across to the final ballot of the Conservative Party leadership race that whittled the contenders down to just two candidates for the top spot and Number 10 Downing Street.
Members of the Conservative Party will now be able to vote beginning on 22 June, where the final two candidates will be put to a postal vote of the 160,000 Tory party members. The winner will be announced in the week of 22 July. GBP/USD hardly reacted though: And the last two remaining candidates left in the Conservative leadership race are ...
For the rest of the week, we have BoE Carney speaking later today and the BoE's Quarterly Bulletin tomorrow along with US Markit manufacturing/services and Existing Homes Sales data. Fed's Brainard will be speaking as well tomorrow.
From a technical standpoint, GBP/USD has recovered from recent 1.2532 lows and analysts at Commerzbank note that the new low has been accompanied by a large divergence of the daily Relative Strength Index, (RSI), and the market has eroded the accelerated downtrend:
"Rallies will need to regain the more important 1.2763/72 resistance (the 7th June high and February low) in order to generate some upside interest. This will target the 200-day moving average at 1.2931. Below 1.2532 would trigger further losses to the 1.2444 December 2018 low."
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