Sterling (GBP) and US Dollar (USD) Talking Points and Chart:
- One or two rate hikes per year assumes UK wage and productivity growth pick up.
- Unwinding QE need not impact UK yield curve if communicated correctly.
- Fed 0.25% interest rate hike fully priced-in for Wednesday.
The DailyFX Q3 GBP Forecast is available to download.
MPC member Vlieghe says 1-2 UK Rate Hikes per Year is Broadly Correct
GBPUSD got a small leg-up mid-morning when external MPC member Gertjan Vlieghe said that 1-2 rate hikes per year would probably be needed if UK wage and productivity picked up. Previously seen as a dove on the MPC, Vlieghe was speaking at the Imperial College Business School on the yield curve and the effects of QE. Vlieghe also said that QE can be unwound – either by selling gilts or letting them roll-off - without pushing yields higher if it is communicated correctly by the Bank of England.
The Yield Curve and QE – Speech by Gertjan Vlieghe
GBPUSD perked up further post-commentary as the pair try to recover last week’s losses. With Brexit news still in charge of Sterling’s destiny, central bank talk is not as effective as it used to be, but today’s rate hike chatter still confirms that the UK will need to tighten monetary policy and maybe at a quicker rate than market pricing is signaling.
FOMC Rate Hike and New Dot Plot
A look at the charts shows GBPUSD splitting the 20- and 50-day averages but still above the 200-day ma despite last week’s downturn. The recent uptrend has been broken and GBPUSD would have to trade and close above 1.3280 to resume this bullish trend. The pair may run into selling pressure when the FOMC releases its latest ‘dot plot’ on Wednesday at the FOMC press conference if the path of 2019 rate hikes is accelerated.
Recent Sterling (GBP) articles:
GBPUSD Weekly Technical Outlook: Bullish Trend Broken
GBP: Bullish Sentiment Erased by Brexit Impasse
GBPUSD Four Hour Price Chart (July 30 – September 25, 2018)
IG Client Sentiment shows that traders are 59.2% net-long GBPUSD but recent positional changes give us a mixed trading bias.
Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.
--- Written by Nick Cawley, Analyst
To contact Nick, email him at nicholas.cawley@ig.com
Follow Nick on Twitter @nickcawley1
