Sterling at 14-month low
Sterling has struggled to crawl back the losses it suffered yesterday as a rate rise in the UK isn’t looking likely until autumn 2015.
In the overnight session the pound failed to retake the $1.58 level and is currently sitting at a 14-month low. Soft commodity prices are keeping the cost of living under control which is good for consumers but it is making it harder and harder for the Bank of England to hit its 2% inflation target. Mark Carney stated that inflation is likely to drop below 1% in the next six months and he also lowered the growth outlook for next year to 2.9% from 3.1%. Traders interpreted this as a sign that interest rates will not move until well into 2015, which will keep pressure on the pound.
Traders have been asking themselves who will raise rates first, the Federal Reserve or the BoE? In light of Mr Carney’s comments, the US central bank is tipped to be the first to move away from rock bottom rates, and this will keep sterling in its downward trend versus the US dollar, which began in July.
The $1.57 level is the initial target for sterling but if that level is punctured traders will look to $1.56. If the pound moves back above $1.58, the 100-hour moving average of $1.5854 will be in focus, and beyond that, $1.59 will be the next target.