BoE Inflation Report Suggests Early 2015 Rate Hike; GBP/USD Reaction

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BoE Inflation Report Suggests Early 2015 Rate Hike; GBP/USD Reaction

BoE (Bank of England) governor, Mark Carney and his MPC colleagues spoke in front of the Parliament’s Treasury Committee, assuring that inflation and jobs outlooks will be inline with goals. Though wages have been declining, Carney expects wage inflation to pick up mid-2015 as the job market improves and starts to increase demand for workers. The BoE seems to be validating the early-2015 timing for a rate hike as Carney noted that UK’s economic recovery has “exceeded all expectations” and has “momentum”.

Mark Carney 9/10

(BoE Governor, Mark Carney)

The thing is, if this Scottish independence referendum pushes the country towards a split from the UK, there might be a lot of uncertainty, which can prevent the MPC from raising rates as scheduled. So as we get closer to the 9/18 referendum vote, GBP might be quite choppy.

Still, traders are seeing a hawkish BoE Inflation Report as a reason to buy the GBP/USD after it has fallen sharply from the 1.7191 high on the year to almost 1.6050. In the 4H chart, you can see price trying to find support and climb from the 1.6050 level. The mini price bottom is being complete during the inflation report.

GBP/USD 4H Chart 9/10
gbpusd 4h chart 9/10

(click to enlarge)

After the BoE Reaction:
If price can start holding north of 1.61, we should be seeing some short-term bullish correction. In the very short-term the bullish outlook should be limited to the 1.6280 area, which was the low from last week.  There could be sellers in this 1.6280-1.63 area, especially if the RSI is back near 60.

In the daily chart, you can see that there has not been any meaningful bullish correction since the fall from 1.7191. We do have a bit of oversold condition, so the very short-term bullish correction scenario is a strong possibility.

However, calling a price bottom here around 1.61 would be like trying to catch a falling knife. There is still downside toward the 1.5855 lows from Nov. 2013, until price action shows a larger and stronger price bottom than the one we are seeing this week.

GBP/USD Daily Chart 9/10
gbpusd 9/10

(click to enlarge)

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.