Forex snapshot

GBP/USD continues to drift lower while EUR/USD holds above the $1.36 level.

Euro and US dollar notes
Source: Bloomberg

Treasury Select Committee comments continue to weigh on GBP/USD

Trying to decipher what yesterday’s comments from the Bank of England mean in comparison to Mark Carney’s Mansion House speech, continues to preoccupy currency traders. The clear message over a week ago was that the BoE would be raising rates earlier than markets had anticipated. This was the boost that GBP/USD needed to finally break above the five-year highs from August 2009, and trade above the $1.7000 level. Yesterday, however, when grilled by the Treasury Select Committee the governor appeared to backtrack on these comments, triggering an instant selloff in cable.

So where are we? It is very unlikely we could see an increase in the base rate in Q3 2014, and to instigate it in Q4 when the retail market is gearing up for its hugely important year-end festive sales would jeopardise the whole retail sector. With this being the case, Q1 2015 looks to be the earliest that the bank could act, and only if the countries productivity has improved and begun to increase earnings too.

Spot FX GBP/USD chart

The European Central Bank and Mario Draghi nervously eye EUR/USD

The economic data coming from the eurozone clearly shows the pace of recovery is too slow and far to concentrated in one or two areas rather than broadly amongst its constituents. The debate over whether to focus on policies that are good for Germany or the plethora of less encouraging countries continues.

Equity indices continue to perform strongly, especially when faced with a euro stronger than desired and a geopolitical backdrop of unrest in energy supplying countries like Ukraine and Iraq.

As my colleague David Madden pointed out yesterday, a break above $1.3640 in EUR/USD would point towards higher highs but should act as a top, capping this current run.

Spot FX EUR/USD chart

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