British Pound: USD/GBP (GBP=X) Bank of England to cut interest rates in November
Pound Sterling put in some gains against the Euro and Dollar on Thursday, July 11 with the currency exploiting a weaker Dollar and Euro, however we maintain a view that the currency will continue to struggle amidst ongoing political uncertainty and growing signs the Bank of England is becoming increasingly open to an interest rate cut over coming months.
Indeed, there is little reason to pin the gains in GBP/EUR and GBP/USD on Sterling strength, and we therefore see this as as a technical phenomenon that is liable to revert back towards the overarching trend of weakness.
Policy Committee (MPC) member Silvana Tenreyro adding to expectations that the Pound cannot count on a supportive interest rate hike over coming months.
Tenreyro delivered a speech Wednesday evening saying that she doesn’t foresee any pressure to raise Bank Rate in the coming months, as she expects inflation to slip below the Bank’s 2.0% target while a weaker global outlook gives cause for concern.
Tenreyro appears to be reinforcing the theme introduced by Governor Mark Carney a week earlier that saw markets suddenly start increasing bets that the Bank will cut interest rates in coming months.
Carney said downside risks to the economy have increased recently owing to global trade tensions and the “stance of monetary policy is tighter than intended”. Markets interpreted the comments as reason to increase expectations for an interest rate cut in coming months.
The Carney comments saw Sterling fall, and we believe Tenreyro’s subsequent communication will ensure the currency struggles to find any significant recovery potential.
The general rule-of-thumb in foreign exchange markets is that currencies rise when their issuing central bank embarks on an interest rate raising cycle, and fall when their central bank enters a rate cutting cycle.
With the Bank of England having for some time indicated that interest rates need to rise it is therefore understandable that the Bank has been a rare source of support for the under-fire Sterling.
Take away that support and Sterling is left looking yet more vulnerable to weakness.
“Recent UK developments underline why we remain GBP bears. The political outlook remains bleak and markets are pushing UK rates lower. With yield support having been one of the few supporting factors, any threat on this front opens up scope for material range breakouts,” says Jalinoos.
Credit Suisse meanwhile expect UK politics to remain a drag on Sterling for the foreseeable future.
“2019 EUR/GBP highs around 0.9100 look achievable, allowing for a push towards 1.2300 for GBP/USD,” says Jalinoos.
EUR/GBP at 0.91 gives a GBP/EUR exchange rate forecast of 1.0989.
Overall, the bias in prices is: Downwards.
By the way, prices are vulnerable to a correction towards 1.27.
The projected upper bound is: 1.26.
The projected lower bound is: 1.24.
The projected closing price is: 1.25.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 19 white candles and 31 black candles for a net of 12 black candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 37.4193. This is not an overbought or oversold reading. The last signal was a buy 1 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 38.44. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 1 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -64. This is not a topping or bottoming area. The last signal was a buy 0 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 6 period(s) ago.
Rex Takasugi – TD Profile
FOREX GBP= closed up 0.003 at 1.252. Volume was 14% below average (neutral) and Bollinger Bands were 4% narrower than normal.
Open High Low Close Volume___
1.250 1.257 1.250 1.252 128,368
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 1.26 1.27 1.29
Volatility: 5 7 10
Volume: 116,742 131,525 168,306
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX GBP= is currently 2.9% below its 200-period moving average and is in an downward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of GBP= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on GBP= and have had this outlook for the last 2 periods.