After the GBPUSD bulls picked up momentum and gained inspiration following the unexpectedly upbeat comments from Bank of England (BoE) Governor, Mark Carney on the possibility of future interest rate rises, the bulls were left empty-handed after the BoE interest rate decision yesterday afternoon and the GBPUSD came under heavy selling pressure.
There are a variety of reasons why investor sentiment towards the GBPUSD weakened very suddenly with this including less members of the BoE voting for a rise in UK rates than expected, and the return of concerns over the appreciation of the Pound and possible impact that this is having on UK exporters alongside increased anxieties over UK inflation risks after the selling in commodity markets resumed.
Both of the latter reasons were repeatedly pointed out in my market reports and basically, I am not surprised in the slightest that the GBPUSD encountered heavy selling yesterday. The bottom line is that although it is very true the UK economy is attractive and more than ready for interest rate rises, alarmingly weak inflation announcements will repeatedly haunt interest rate expectations. It will take quite some time for the gains in wages and disposable income to be filtered through the UK economy, which ultimately means improved inflation expectations. This also means gains in the GBPUSD will continually be capped, because investors will be hesitant towards taking out a longer-term position on the UK currency.
Follow Jameel on Twitter @Jameel_FXTM
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