Pound cools post-Fed minutes
Sterling spiked last night on the back of the Fed minutes but the currency pair only spent a brief moment above $1.57. In overnight trading, the pound was stuck in the tight range of $1.5670-$1.5680. However, it has now broken out of that range to the downside, but sterling can’t keep relying on a weak US dollar for a bounce of its own.
The Fed minutes were much of the same; it was plain sailing for putting an end to quantitative easing but there was some division over what language would be used in reference to how long interest rates would remain at all-time lows. In the end, ‘considerable time’ prevailed but the fact that some members wanted to ditch that phrase is mildly hawkish, and this will keep sterling on its toes.
Yesterday the Bank of England revealed the minutes from the latest meeting. The breakdown was as follows: seven were in favour of keeping rates on hold and only two were looking to raise rates, which met the market expectations. As I stated yesterday, traders aren’t expecting a move away from rock bottom rates until well into next year, which will keep the pound under the cosh.
The UK will announce retail sales and CBI industrial orders expectations at 9.30am and 11am (London time). The consensus is for a reading of 0.4% and -3 respectively. Inflation in the UK recently ticked up to 1.3% from 1.2%, which suggests an increase in consumer appetite, and this could nudge sterling higher.
To the downside, the first target is $1.56. If the November low of $1.5592 is punctured then traders will look to $1.55. To the upside, $1.57 is the immediate level to watch. Then, the 200-hour moving average of $1.5746 and beyond that $1.58 will be in sight.