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Pound Eyes 1.6200 on More Hawkish BoE, Stronger U.K. Recovery

Pound Eyes 1.6200 on More Hawkish BoE, Stronger U.K. Recovery

David Song, Strategist
Pound_Eyes_1.6200_on_More_Hawkish_BoE._Stronger_U.K._Recovery_body_Picture_1.png, Pound Eyes 1.6200 on More Hawkish BoE, Stronger U.K. Recovery

Pound Eyes 1.6200 on More Hawkish BoE, Stronger U.K. Recovery

Fundamental Forecast for the British Pound: Bullish

Fresh comments from Bank of England (BoE) Governor Mark Carney pushed the British Pound to a weekly high of 1.6132, and the GBPUSD may continue to track higher ahead of the next policy meeting on October 10 as the central bank moves away from its easing cycle.

Indeed, Mr. Carney said there’s ‘no case for more quantitative easing’ in light of the ‘strengthened, broadened’ recovery, and argued that he does not support the non-standard measure. In turn, higher U.K. home prices along with a further pickup in Mortgage Approvals may prompt BoE officials to adopt a more hawkish tone for monetary policy committee next week as Mark Carney, Paul Tucker, and Paul Fisher are scheduled to speak in the coming days.

If we see a growing number of central bank officials show a greater willingness to implement the exit strategy ahead of schedule, expectations building into next month’s policy meeting may limit the downside risks for the sterling, and we may see a further shift in the policy outlook should the MPC toughen its stance on inflation.As a result, we may see the central bank make an increased effort to achieve the 2% target for price growth, and a more material alteration in central bank policy is likely to further impact the near-term outlook for the GBPUSD as the bullish momentum gathers pace.

The upward trending channel in the GBPUSD may continue to take shape as the Relative Strength Index follows a similar dynamic, and we may continue to see a series of higher highs paired with higher lows until the bullish formation deteriorates. With that said, the pound-dollar may make another attempt to test the 1.6200 handle, the 23.6% Fibonacci retracement of the 2009 range. - DS

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