- GBPUSD fails to break through former support region.
- See the March forex seasonality report for trends in the QE-era.
Bank of England policymakers have been out in the media in recent days harping on the strength of the trade-weighted British Pound and the headwind it poses to inflation. Even Governor Carney, one who has long spoken of the potential for higher rates in 2015, has conceded that inflation may turn negative for a while this year. The first step in that direction was taken last month, as today's release of the February CPI report showed the weakest inflation print on record (since the data series began in 1999).
While the UK is in a veritable state of policy paralysis - the General Election on May 7 may only yield a weak minority government with no mandate, leaving fiscal reform dead on arrival and the potential for elections again later this year or early next very much alive - hope for any support for the UK economy lies solely with the BoE. As global disinflationary trends take root, this means that the BoE may be forced to keep rates on hold at emergency record low levels through at least early-2016, the Sterling susceptible to further downside.
Technical stress has developed on short-term timeframes in several GBP-crosses, including in GBPUSD, where the post-FOMC rally has repeatedly failed in the former yearly low region established in late-January/early-February. Coupled with signs of continuation in EURGBP towards £0.7460 and GBPJPY breaking down through the October 2014 to February 2015 uptrend, it seems that the British Pound is sitting on the edge of another swing lower.
--- Written by Christopher Vecchio, Currency Strategist
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