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A Lack of BoE Forward Guidance Sends the Pound Higher

A Lack of BoE Forward Guidance Sends the Pound Higher

Benjamin Spier, Technical Strategist

THE TAKEAWAY: BoE says it will only release guidance review on August 7 -> Interest rate and asset purchases unchanged -> Pound rises

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Pound traders decided that a lack of a forward looking statement following the Bank of England’s monthly rate decision is a good sign for the Sterling. GBP/USD jumped about seventy pips and above the 1.52 line after the BoE announced that it will only publish a review of guidance on August 7, thereby not continuing last month’s unprecedented decision to release forward guidance on the day of the rate decision.

The Monetary Policy Committee voted in its August meeting to leave its target interest rate and asset purchase target unchanged at 0.50% and 375 billion Pounds respectively, as was expected by a majority of Bloomberg surveyed analysts.

In the July BoE meeting, which marked Governor Marc Carney’s first meeting with the central bank, the MPC released forward guidance noting that market rates are weighing on its economic outlook, and the guidance said that the recovery is still weak based on historical standards. Many commentators have since claimed that the BoE is using guidance as a form of economic stimulus in place of additional quantitative easing. That assumption led the market to view the lack of forward guidance as a positive factor for the Pound.

Cable is trading around 1.5230 at the time of this writing, and the pair may continue to see resistance around 1.5280. A two-week low set yesterday at 1.5124 may now provide support.

The ECB will announce its target interest rate decision at 11:45 GMT.

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GBPUSDDaily: August 1, 2013

A_Lack_of_BoE_Forward_Guidance_Sends_the_Pound_Higher__body_gbpusd.png, A Lack of BoE Forward Guidance Sends the Pound Higher

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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