GBP/USD: BOE feels comfortably hawkish (video)
Kira Iukhtenko, FBS analyst
The cable slowed its bearish parade on the past week, but remains in a clear-cut descending channel since mid-July. The market cried for a bullish correction after 7 consecutive weeks of losses, but we are convinced that the price won’t return back above $1.6700 in the foreseeable future. Our next bearish targets for the cable lie at $1.6460 and $1.6300.
What are the reasons to stay bearish for GBP/USD? We see two of them. Firstly, investors have evidently overvalued the BOE intentions to hike rate sooner than in Q2 2015. UK economic recovery remains on track and we remember that last week 2 BOE members from 9 voted for an immediate rate hike to 0.75%. However, the majority in the MPC remain very cautious about the premature rate hikes. That’s what we’ve heard from the Broadbent in Jackson Hole: economy is recovering, but there is no hurry to raise rates as inflationary pressures remain subdued.
The second reason for a weaker cable lies in the United States. Sustainably strong numbers make us believe the US economic recovery is finally taking hold. The markets are now looking forward to the US NFP on Sept 5 to get a confirmation of the labor market strength.
Next week will be rich for the UK economic releases. At the beginning of the week we’ll get the August Purchasing Managers indices, while on Thursday the BOE will announce its monetary policy decision. No policy change is expected.