Sterling still under pressure
It is a worrying sign that the pound has failed to retake the 200-hour moving average of $1.6056 in the wake of the BoE minutes yesterday. In less than one week we have had two clear signs that that the UK won’t be increasing interest rates until mid-2015.
The pound has remained in a downward trend since July. We would need to move through the 50-day moving average of $1.6231 in order to end the downward cycle. Meanwhile, the gap between the UK and the US is widening with existing homes sales in the US now at a one-year high. This does not guarantee a rate rise from the Federal Reserve in Q1 of 2015, but there would be more justification for it.
Looking at the relative strength index the pound is edging towards oversold territory. If we hold above the $1.60 mark it could retest $1.6056, and a move through that could put $1.61 in sight. A drop below the psychological $1.60 may put last week’s low of $1.5874 on the radar.