Sterling Consolidates Ahead of Minutes


Sterling is trading on the defensive against the Greenback on Monday but remains relatively firm against the Euro. The outlook still remains bullish for the pound, as interest rate differentials continue to move in favor of the UK. Recent data have rekindled BoE tightening expectations, including the spike in average household income growth to +3.2% year over year from 2.7% in the three months to May, and BoE Governor Carney last week said during parliamentary testimony that a rate hike is drawing closer.

This week’s focus will be on the retail sector, with the latest CBI retail survey and official retail sales numbers due, which should be sterling supportive. The BoE minutes to the July MPC meeting are also up, which we expect the minutes will reveal a unanimous vote to maintain the repo rate at 0.5% and keep in the QE total at GBP 375 billion, and the tone to remain no more than cautiously hawkish. Wage gains are generally considered a precursor to inflation as it can easily spill over into the housing sector which is already very hot.

The GBP/USD hit a fresh lower and a lower low for the 4th consecutive trading session. Short term resistance is seen near the 20-day moving average at 1.5588. Additional resistance is seen near a downward sloping trend line that comes in near 1.5650. Support is seen near an upward sloping trend line that connects the lows in June to the lows in July and comes in near 1.5420. Momentum is flat which reflects the consolidation pattern seen over the past 3-months with the MACD printing at zero with little to no trajectory.

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