Market participants observed a hefty selloff of the GBP across the global currency markets as BoE doves empowered the Sterling bears. This came as a shock, as despite the revamping of robust economic data from the UK, today’s dovish stance from the BoE has renewed concerns about a potential slowdown in economic momentum within the UK economy.
The latest quarterly inflation report slashed CPI targets and GDP growth for 2016 has been shaved to 2.5%. This meek outlook that the BoE has presented will continue to enforce downward pressure on the GBP. Additional discussions about the extension of QE if downside risks emerge may continue to weigh on investor confidence with sentiment for the GBP now dragged back into bearish territory.
The Bank of England’s hesitance to act may be derived from fears concerning the slowdown in the global economy, and the declining UK CPI readings which have followed a downward trajectory will continue to make the central bank wary on rate hike timings. Investors have been left empty handed once more as speculations mount on when or if the BoE will ever move forward with a rate hike. BoE Carney may attempt to enforce some hawks and articulate his repetitive script about the central bank moving forward in the near future, but expectations of the BoE acting have heavily diminished and the effects of this Super Thursday surprise will continue to drag this month.
As a result of the BoE’s stance, the GBPUSD experienced a very sharp selloff. Sterling bulls were counting on BoE hawks to provide the fuel to test the 1.5500 resistance, but the complete opposite has happened. The bearish momentum may send this pair to the 1.5200 support and if Friday’s NFP exceeds expectations then the GBPUSD may cliff dive back to the very strong 1.5150 weekly support.
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There seems to be a pattern among the central banks, as it seems that the ECB, BoJ and BoE may be in a mode of standby waiting for the Fed to act, before moving forward in 2016 or even 2017.
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