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BOE rate decision preview: What to expect of GBP/USD?

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 17, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Broad based USD selling; coupled with resilience in UK’s FTSE index has pushed GBP/USD pair to a high of 1.4375 ahead of the Bank of England rate decision and minutes release.

    BOE to stand pat

    The central bank is widely expected to keep rates unchanged and the minutes are likely to show a unanimous vote in favor of keeping rates unchanged at record lows. Hence focus is likely to be on bank’s take on UK inflation and wage growth.

    OBR came out with bearish inflation and growth forecasts yesterday and the bank is likely to acknowledge the same. However, both are already priced-in and unlikely to weaken Pound, given the offered tone around USD is very strong.

    A hawkish/dovish surprise may come through shift in vote count. 8-1 in favor of rate hike would only add to the bullish tone around Sterling and send Cable higher to 1.45-1.4560 levels. On the other hand, a vote in favor of a rate cut would trigger broad based GBP selling.

    A possibility of a vote in favor of a rate cut is very low, however, it is worth noting that interest rate markets see a higher possibility of a rate cut in 2016 than the possibility of a rate hike and the policymakers may bow down to market expectations, the way ECB and Fed did in last one week.

    GBP/USD Technical Levels

    The immediate hurdle is seen at 1.44 (zero figure + inverse head and shoulder neckline), above which the spot could target resistance at 1.4436 (Mar 11 high) and 1.4516 (Feb 16 high). On the other hand, a breakdown of immediate support at 1.4330 (23.6% of 1.5930-1.3835) would open doors for a slide to 1.4288 (50-DMA + 5-DMA). A violation there would expose hourly 200-MA now seen at 1.4241.
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