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GBP/USD Keeps Falling Despite BoE Minutes Confirming Pause on Stimulus

GBP/USD Keeps Falling Despite BoE Minutes Confirming Pause on Stimulus

2013-10-23 09:14:00
Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- Bank of England votes 9-0 on no new stimulus, keeping main rate at 0.50%.

- UK economy seen improving as UK yields steady at relatively higher levels.

- Following the release, GBPUSD hits freshdailylow at $1.6136.

The Bank of England is turning more optimistic on the UK economy, but that doesn’t necessarily mean the British Pound would respond positively to today’s October policy meeting Minutes. Indeed, despite strong consideration that the housing sector was improving and the labor market was enjoying relative success, the BoE’s optimism was largely priced in already. After all, the British Pound is the top major performer over the past three- and six-month periods.

Overall, a neutral policy meeting gave way to a neutral batch of Minutes. Some items to consider going forward may be the Monetary Policy Committee’s repeated 9-0 vote against more stimulus (QE), a sign that the central bank is attempting to normalize policy. Additionally, with inflation running above the BoE’s target, the central bank noted that a strong British Pound would help insulate consumers’ disposable income.

In sum, the BoE is looking for the UK economy to grow by +2% in the second half of 2013. Should the central bank’s expectations on housing and labor continue to develop as they have, it is likely that the next three- and six-month periods ressemble the last for the British Pound. In the short-term, the hold in policy is being viewed as a profit taking opportunity amid a broader selloff in risk assets.

GBPUSD 1-minute Chart: October 23, 2013

GBPUSD_Keeps_Falling_Despite_BoE_Minutes_Confirming_Pause_on_Stimulus_body_x0000_i1027.png, GBP/USD Keeps Falling Despite BoE Minutes Confirming Pause on Stimulus

Charts Created using Marketscopeprepared by Christopher Vecchio

Following the data, the GBPUSD initially rebounded from $1.6166 to as high as 1.6179, but within a few minutes had reached its gains. In fact, the GBPUSD continued the aggressive selling that developed overnight, with the pair hitting a fresh daily low at 1.6136. Similar price action was observed elsewhere, with the GBPJPY falling from ¥157.20 to as low as 156.96.

--- Written by Christopher Vecchio, Currency Analyst

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