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GBP to Target Higher High on BoE Policy Outlook; 1.6850-60 in Sight

GBP to Target Higher High on BoE Policy Outlook; 1.6850-60 in Sight

David Song, Strategist
GBP_to_Target_Higher_High_on_BoE_Policy_Outlook_1.6850-60_in_Sight__body_Picture_5.png, GBP to Target Higher High on BoE Policy Outlook; 1.6850-60 in Sight

Fundamental Forecast for the British Pound: Bullish

The British Pound looks well on its way to fresh highs as we see a growing number of Bank of England (BoE) officials prepare U.K. households for an imminent rise in borrowing costs.

Indeed, the Monetary Policy Committee (MPC) has said a lot ahead of the policy meeting, which in itself is a rare occasion, and it seems as though the March 6 meeting will largely revolve around the timing of the first interest rate hike as the pickup in economic activity raises the long-term threat of an asset-bubble. In light of the recent batch of central bank rhetoric, the BoE has made it very clear that interest rates will rise only gradually while staying below pre-crisis levels, but we may see a limited reaction to the rate decision should the central bank refrain from releasing a policy statement.

Nevertheless, the interest rate outlook should continue to limit the downside risk in the British Pound, while economic developments pointing to higher home prices along with a further rise in U.K. Mortgage Applications (74.5K) could take the GBP/USD to fresh highs ahead of the BoE meeting as it raises the central bank’s scope to normalize monetary policy sooner rather than later.

With that said, the GBP/USD may continue to produce a series of higher highs and higher lows in March, and the next level of interest comes in around 1.6850-60, the 78.6% Fibonacci expansion from the October advance, followed by 1.7020-30, the 100% expansion. -DS

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