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GBP/USD – Pound Breaks 1.70 After BOE Minutes

GBP/USD has edged lower on Wednesday, as the pair trades in the mid-1.69 range in the North American session. The pair briefly moved above the 1.70 early in the day but was unable to consolidate at these levels. On the release front, the BOE minutes indicated that the interest rate and QE decisions were unanimous. Two MPC members will speak during the day, and the markets will be listening for any mention of the BOE minutes. In the US, Current Account disappointed, as the deficit shot higher in May. Today’s highlight is the Federal Reserve policy statement and follow-up press conference.

The Federal Reserve is in the spotlight on Wednesday, as the US central bank will release a policy statement later in the day. The Fed is expected to trim its QE program by another $10 billion, which would reduce the asset purchase scheme to $35 billion/month. The big question is when the Fed will raise interest rates, but Fed chair Janet Yellen is unlikely to shed much light on that issue. If, as expected, QE is wound up in 2014, we could see a rate hike in the first half of 2015. However, cuts to QE are dependent on the health of the US economy, which continues to move in the right direction, despite some bumps in the road.

The BOE opted to hold the course with regard to the benchmark interest rate and the asset purchase program, and as expected, the minutes showed that these decisions were both unanimous (9-0). The BOE kept interest rates at 0.50%, and QE at 375 billion pounds. There has been much speculation about when the BOE might raise rates, and Governor Mark Carney singlehandedly caused a run on the pound last week, after stating that a rate increase could occur earlier than expected by the markets. Had the rate decision not been unanimous, we could have seen the high-flying pound move even higher.

It’s become a familiar story in the UK, as CPI, the primary gauge of consumer inflation, lost ground as it posted a gain of 1.5%. This was short of the estimate of 1.7%, and the index’s lowest gain since September 2009. Perhaps more worrying is the fact that with the exception of the April reading, CPI has posted smaller gains every month since last September. The lower inflation levels will be welcome news for the Bank of England, since it means less pressure on the Bank to raise interest rates. However, with the economic recovery deepening, there is growing sentiment that the BOE could hike rates sometime this year.

 

GBP/USD for Wednesday, June 18, 2014

GBP/USD June 18 at 15:35 GMT

GBP/USD 1.6946 H: 1.7003 L: 1.6932

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.6700 1.6825 1.6920 1.7000 1.7183 1.7228

 

Further levels in both directions:

 

OANDA’s Open Positions Ratio

GBP/USD is pointing to gains in long positions on Wednesday, reversing the trend we have seen since the start of the week. This is not consistent with the movement of the pair, as the pound has posted slight losses. A significant majority of open positions in the GBP/USD ratio are short, indicative of a trader bias towards the dollar moving higher.

GBP/USD has posted slight losses on Wednesday, despite breaking above the 1.70 line earlier in the day. The pair is unchanged in the North American session.

 

GBP/USD Fundamentals

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher [4]

Currency Analyst at Market Pulse [5]
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.