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Bearish GBP Momentum Falters- 1.63 in Focus Going Into BoE Minutes

Bearish GBP Momentum Falters- 1.63 in Focus Going Into BoE Minutes

David Song, Strategist
Bearish_GBP_Momentum_Falters-_1.63_in_Focus_Going_Into_BoE_Minutes_body_Picture_1.png, Bearish GBP Momentum Falters- 1.63 in Focus Going Into BoE Minutes

Bearish GBP Momentum Falters- 1.63 in Focus Going Into BoE Minutes

Fundamental Forecast for the British Pound: Bullish

The British Pound climbed to a fresh monthly high of 1.6134, with the GBPUSD continuing to close above the 1.5900 handle, and the sterling may continue to track higher next week should the Bank of England (BoE) Minutes highlight a greater willingness to implement the exit strategy ahead of schedule.

Despite the downward revision in the BoE’s inflation forecast, the quarterly report sounded more upbeat this time around as Governor Mark Carney anticipate a faster recovery in 2014, and it seems as though the Monetary Policy Committee (MPC) will do little to halt the appreciation in the British Pound as it helps the central bank to achieve the 2% target for price growth. In turn, BoE Minute may reveal a more hawkish tone for monetary policy, and the statement may help to generate a more meaningful rally in Cable as the committee appears to be moving away from its easing cycle.

Following the updated forecast, BoE board member Martin Weale argued that the marked decline in unemployment may continue to shift the outlook for monetary policy and the central bank may sounds more hawkish going into 2014 as the jobless rate approaches the 7% threshold faster-than-expected.

As a result, the policy outlook should continue to limit the downside for the British Pound, and the BoE may increase its effort to anchor inflation expectations as the faster recovery in the U.K. raises the risk of seeing above-target price growth for a prolonged period of time.

At the same time, the technical outlook also remains supportive for further British Pound strength as the Relative Strength Index on the GBPUSD finally breaks out of the bearish trend dating back to September, and the pair may have carved a higher low in November, which could bring a more meaningful run at the 1.6300 figure. - DS

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