Pound falls to 10-mth low on Bailey comments

The British pound continues to lose ground this week. In the North American session, GBP/USD is trading at 1.3773, down 0.42% on the day.

It has been a rough week for the pound, as GBP/USD has declined close to one percent. The pair has slipped into 1.37 territory and has fallen to its lowest level since April 23.

Will the real Andrew please stand up?

Are we getting some confusing messages from the BoE on inflation? The catalyst for today’s drop was comments earlier today from BoE Governor Andrew Bailey, who said it was “important not to over-react” to temporarily strong growth and inflation”, warning that premature tightening could undermine the recovery. Predictably, these dovish comments sent the pound lower.

The message was startlingly different from Andy Haldane, the bank’s chief economist. Haldane, who is leaving his position at the end of the month, warned on Thursday that inflation could rise close to 4% in 2021 and the BoE might be forced into drastic action in order to prevent the economy from overheating. This assessment was in stark contrast to Haldane’s colleagues on the bank’s monetary policy committee, which just last week projected that inflation would peak at 3% in 2021 and drop in 2022. In contrast to Bailey’s assertion that inflation was temporary, Haldane warned of a “significant and persistent” rise in inflation.

Inflation hit 2.1% in May, up from 1.5% in April. Clearly, inflation is on an upswing, but in this battle between the Andrews, we’ll have to wait until the end of the year to see how high inflation goes.

Manufacturing continues to be a bright spot in the UK economy. Manufacturing PMI in June came in at 63.9, close to the May record of 64.2. This marked the 13th straight month of expansion, with readings above the 50-level.

.

GBP/USD Technical Analysis

  • There is resistance at 1.3993, protecting the symbolic 1.40 level. Above, there is resistance at 1.4105
  • On the downside, 1.3778 is the first level of support. This is followed by a monthly support line of 1.3675

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/

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

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

Latest posts by Kenny Fisher (see all)