GBP: The Central Bank Clears the Path for Rate Hikes

Talking Points:

  • GBP/USD hits a 15-month high.
  • Market expectations now point to a 0.25% rate hike in 2017.
  • GBP/USD may test 1.4000 if the FOMC disappoints on Wednesday.

Fundamental Forecast for GBP: Bullish

The bank of England made clear this week that markets are underestimating the possibility of an interest rate hike this year, despite weak GDP and wage growth numbers. The clear message was sent out by governor Carney after Thursday’s MPC meeting and reinforced by a hawkish speech by BOE policy maker Gert Vlieghe, a one-time dove. Cable duly responded hitting a 15-month high and still has room to move to the upside, especially as the USD remains weak.

On the weekly chart the 38.2% retracement of the July 2014 – October 2016 sell-off comes into play at 1.39116 while the a gap up to 1.40175 also remains to be filled, helping to complete a reverse head and shoulders. Support remains at the 23.6% Fibonacci retracement at 1.31379, while the August 3 high of 1.32700 should also provide a layer of downside protection.

Chart: GBP/USD Weekly Time Frame (April 2014 – September 15, 2017)

GBP: The Central Bank Clears the Path for Rate Hikes

Care should be taken at the start and the end of the week with BOE governor Carney speaking to the IMF on Monday while UK PM Theresa May sets out the government’s position on Brexit in a speech in Florence on Friday. And just to keep traders on their toes, the latest FOMC policy decision, summary of economic projections and accompanying press conference are unveiled on Wednesday.

--- Written by Nick Cawley, Analyst

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