Sterling Continues to Trade Lower Following Dovish BoE Decision

Sterling continues to move lower on Friday following the monetary policy decision and subsequent meeting minutes released by the Bank of England. Market expectations were for an unchanged rate but seeing only one dissent compared to the two expected, took the shine off of sterling.

The main takeaway from the BoE MPC’s meeting was that near-term inflation is seen remaining very benign over the next six months, employment is growing more slowly than expected, although at still robust levels, and the 3.5% appreciation in the trade-weighted value of sterling since May has been causing moderate tightening in real interest rates, enabling nominal interest rates to remain low for longer.

UK June deficit on trade in goods and services was 1.6 billion after GBP 0.9 billion in May. The goods deficit was GBP 9.2 billion, and the services surplus was GBP 7.6 billion. The Q2 goods and services deficit worked out at GBP 4.8 billion, narrowing by GBP 2.7 billion from Q1. The data are better than anticipated, though market impact has been minimal.

Sterling traded down to support levels and appears to be holding just above and upward sloping trend line that connects the lows in June to the lows in July and comes in near 1.5480. Short term resistance is seen near the 10-day moving average at 1.5575, and then a downward sloping trend line that connects the highs in June and the highs in July and comes in near 1.5650. Momentum is flat with the MACD printing near the zero index level. The exchange rate is consolidating and poised to break to one side or the other.

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