The British Pound has fallen lower into the end of the week as the Bank of England failed to satisfy the hawkish expectations which had built up among traders ahead of the June rates meeting yesterday. Policymakers at Threadneedle street opted to keep monetary policy at current levels, as was widely expected. However, the hawkish signals the market was banking on failed to materialise and GBP was so sold consequently.
Haldane Votes In Favour of Tapering
From the off, the meeting contained some disappointment for bulls. There had been speculation that the bank’s outgoing chief economist Andy Haldane might vote against keeping policy on hold, given his more hawkish commentary over recent weeks. However, voting was seen as unanimously in favour of keeping rates unchanged. Haldane did, however, vote in favour of tapering asset purchases.
BOE Not Concerned About Inflation
The most focused on aspect of the meeting was the bank’s assessment and outlook regarding inflation. Given the rise in real inflation over recent months as well as the rise in inflation expectations, traders had expected the BOE to signal the need for tapering as a means of addressing inflation, abandoning its view that the lift in inflation would be transitory. However, in a blow to the GBP bullish view, the BOE stuck to its guns on inflation.
Governor Bailey reaffirmed his message that the current and expected lift in inflation would prove to be transitory and as such, would not require a change in policy. In terms of judging the performance of the economy, the BOE noted that while the fundamental picture had improved and the recovery was continuing to improve there is still a great deal of uncertainty, specifically around furlough support ending and new variants of COVID emerging.
Optimistic Outlook
However, the bank’s broader outlook remained positive. Inflation is forecast to rise higher than previously thought with economic activity forecast to grow quicker than expected this year also. Notably, the bank also said that the forecast impact from the delay in lockdown easing would likely be relatively small.
Technical Views
GBPJPY
The rebound in GBPJPY has so far been capped by the retest of the broken bullish channel from last year’s lows. With both MACD and RSI turned lower, while price holds below the channel there is a risk of a further move lower. To the downside, should price break the 151.36 lows, 149.39 is the next support to note. While price holds above 153.39, however, there is room for a further move towards 156.66 level.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.