Sterling supported by Carney’s comments

The sterling remains one of the most interesting currencies to watch right now as the latest economic data suggests a rate hike is nowhere near fruition.

Source: Bloomberg

Yesterday we saw home loan approvals disappoint, adding to the recent downgrade to inflation expectations. Meanwhile, BoE Governor Mark Carney spoke and suggested the MPC’s discussions have been about the pace, timing and degree of tightening policy. In fact, there had been no discussion about the possibility of further easing.

Given the backlash the UK economy is likely to get from a struggling Eurozone, it appears the central bank could be underestimating the potential impact. Additionally, the recent weakness in the sterling suggests there is a disconnect between the market and the MPC right now. From a price action perspective, cable closed below the 61.8% retracement of the July 2013 to July 2014 rally, coming in at $1.5722.

There is also a downtrend resistance line which can be drawn from July 2013 highs that has capped any recovery over the past six months. I feel any moves into $1.5800 – where this downtrend comes in – will be a good selling opportunity. Near-term targets would be to November lows in the $1.5600 region.

Click to englarge

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

Find articles by analysts