Pound Continues to be Pressured as King, Posen Defend Low Rates
The Pound continues to be pressured by its economic outlook, as Bank of England policy makers try and decide what to do next with monetary policy. The door was opened up to more quantitative easing by the central bank in its previous BOE Minutes, which has caused traders to sell the Pound. One of the more dovish members – Adam Posen – said that the BIS’s call for countries around the world to raise interest rates was “nonsense”, a suggestion that the bank is not close to raising rates despite inflation running at a 4.5% annual rate.
From Bloomberg: “The pound fell against the euro and the yen as comments from Bank of England policy makers on the U.K.’s inflation and growth outlook spurred traders to cut bets on interest rates rising from a record low.
Coe< >pending remains weak, wage growth is low and longer-term inflation expectations have not risen markedly, giving the central bank space to keep rates at their low levels. Most of the recent inflation is deemed to be temporary and mainly a result of imported inflation (higher energy and commodity prices) which has not filtered down to underlying inflation, according to the consensus of the BOE.
Thn< >f England governor went before Parliament to answer questions on monetary policy and defended the central banks’ record low rates as the BOE judges trying to raise rates now in order to bring inflation back down to target would undermine growth.
He also cited c
““There is suff>cient concern in the market about the possibility of default for us to think carefully about contingency plans and the consequences of this event,” King said.”
Overnight, we also < >isappointing report from the UK in the form of a larger than expected current account deficit. That means that the UK government will have to issue more debt to finance its spending, something that runs counter to the goal of George Osborne, the country’s Chancellor of the Exchequer.
From Trading-Po”nt:=”#8220;”> British CurrAccount for the first quarter of the present year, was released below the expectation of -4.7 billion GBP extending the deficit of the account at – 9.354 billion GBP, almost twice lower than the forecast, the previous reading was -12.956 billion GBP. The negative year over year GDP, the larger deficit in the Current Account along with the dovish BoE minutes released last week made the British pound very vulnerable and frail.”
Taken altogether, the s< >omments from the bank’s officials and the weaker current account kept the GBP weak, as it remained below an important level at 1.6060.
In the 4-hour tim>>eso continue to see the pair respecting its 21-period EMA as resistance, and the alignment of the long term, medium term and shorter term moving average is bearish. The pair has so far managed to close above another key level – this one support at the held above another key level of support, that 1.5935, our lows from late March.
We can see that 3>w the daily chart above. Will this support hold? We have already broken an upward sloping trendline in the daily timeframe, as well as moved below the 200-daily EMA. If the pair pushes below this level, we have a 61.8% retracement of the full upswing from January through March at the 1.5890 level as our next level. The MACD indicator is turning bearish, and the RSI is already is below the 40 level indicating bearish momentum.
Key for the GBP this weel< >e the manufacturing PMI released on Friday. We have seen 3 straight months of disappointing figures from that sector, which is expected to pick up the slack as exports help offset weaker domestic spending. IF we see another weaker reading, the concerns about hte UK economy continue which means we continue to have the GBP falling.
Informati”> and op>o