Heading into the penultimate day of the trading week, investors are still trying to digest yesterday’s confusing FOMC minutes, and the dollar is mixed as a result. Meanwhile, the British pound saw its own central bank “excitement” today with the conclusion of the Bank of England’s monthly monetary policy meeting. As expected, the central bank left interest rates unchanged at 0.5%, the same level that they’ve been pinned to since January 2009.
The BOE does not provide an accompanying statement, so we’ll have to wait for the meeting minutes in two weeks for more details on the deliberations. Realistically though, any rate hike is still some distance away. Annual inflation recently slowed to 0.0% in the UK, the lowest reading in 50 years, and while this subdued reading is expected to be temporary, the BOE is not in any hurry to raise rates. In fact, the BOE’s chief economist, Andy Haldane recently suggested that the bank’s next move could be to cut interest rates if inflation does not pick up again soon. In our view, the UK’s strong economic growth (GDP rose 2.6% in 2014 and the BOE’s MPC expects growth of nearly 3% this year) precludes a rate cut, but the central bank will likely err on the side of caution until price pressures start to pick up meaningfully.
Technical View: GBPUSD
Cable saw minimal reaction to the decision, with GBPUSD continuing to consolidate around 1.4800. On a technical basis, the pair is testing the bottom of a near-term symmetrical triangle pattern. Meanwhile, the secondary indicators on the 4hr chart are showing signs of rolling over: the MACD is edging below its “0” level and the RSI is testing critical support at 40, bolstering the bearish case. If we do see a conclusive break below today’s low, a deeper pullback toward 1.4700 or the mid-March low at 1.4640 could come into play next. The market may even look to fade a bounce back to 1.4900, given the longer-term downtrend and key resistance in the 1.49-1.50 corridor.