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British Pound Outlook Depends on Bank of England’s Words This Week

British Pound Outlook Depends on Bank of England’s Words This Week

David Rodriguez, Head of Product
British_Pound_Forecast_depends_on_Bank_of_England_body_Picture_5.png, British Pound Outlook Depends on Bank of England’s Words This Week

British Pound Outlook Depends on Bank of England’s Words This Week

Fundamental Forecast for the British Pound: Bearish

The British Pound fell against most major FX counterparts as the Bank of England left interest rates unchanged. Yet the real volatility may come on next week’s highly-anticipated BoE Inflation Report, which promises to shed light on the bank’s net rate moves.

An important improvement in UK economic data suggested that the Bank of England could be among the first major global central banks to begin raising interest rates from record lows. Yet BoE Governor Mark Carney quickly made clear that officials were in no hurry to tighten policy, and the GBP gave back much of its yield-driven gains.

The key question becomes whether Monetary Policy Committee (MPC) members will keep their commitment to accommodative policy in the face of improving GDP and employment numbers. We’ll listen to the Inflation Report for any clues on future rate moves and/or changes to its Asset Purchase Program. Any surprises could almost certainly force major moves out of GBP pairs.

The British Pound has remained in a broad and choppy range through the start of 2014, but the fact that it has fallen so sharply from multi-year peaks warns of an important turn in market sentiment. Indeed our Retail FX trader sample showed a fairly substantial swing in positions as the pair fell from recent heights.

Our Senior Technical Strategist writes that GBP underperformance may point to a bigger turn. We’ll look to the week ahead to clarify outlook on the British currency. - DR

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