Today the GBP/USD fell after the BoE minutes revealed a unanimous vote to hold the benchmark interest rate at 0.50% during the Jan. 7 – 8 monetary policy meeting. This is a shift from a 2-7 vote, where 2 dissents, Weale and McCafferty had voted for a rate hike in the last handful of meetings. However, due to declining inflation pressure and a fragile economic recovery, the hawks became dovish.
We also had some jobs data today, which were better-than-expected, by overshadowed by the dovish minutes, which should keep the pound pressured.
Claimant Count Change (Dec.) -29.7K
Previous: -29.6K (-26.9)
Unemployment Rate (Dec.): 5.8%
Average Earnings Index 3m/y (Nov.) 1.7%
The claimant count change was better than expected, as was the unemployment rate for Dec. We also saw improvement in earnings in the 3 months to November compared to the same period in 2013.
The GBP/USD was testing the 1.52 handle. As noted in a previous GBP/USD article, a break above would put pressure towards 1.5270 with a possible double bottom. However, the market kept the GBP/USD bearish after the BoE minutes.
Bearish Continuation Structure: Instead of forming a double bottom, the structure of recent price action is now a head and shoulders, or rounded top. During a downtrend, these patterns are indicative of bearish continuation. Thus, the pressure is now on the 1.5035-1.5050 support area and 2015-low so far, with the risk of breaking towards 1.50.
More Bearish Signs: On top of the price structure, the SMAs and RSI also reflect a market ready for bearish continuation. PRice has returned below the 50-period SMA, and the SMAs are still in bearish alignment. The RSI has held below 60, and thus shows maintenance of the prevailing bearish momentum.
Comparison Based Central Bank Policy Stance: This decline was not due to a strong USD. We saw the EUR/GBP rally and the GBP/JPY fall after the BoE minutes as well. But if we look at the hawkish – dovish scale of the 4 associated central banks, they are FOMC>BoE>ECB>BoJ. So, while the pound might eventually find resilience against the JPY and EUR, it is more likely to continue its decline against the USD.
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