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Sterling Moves Lower as Momentum Turns Negative
The Pound traded lower versus the dollar on Thursday in the wake of the Fed rate hike and the subsequent dovish statement. This comes despite a stronger than expected UK retail sales that revealed a 1.7% month over month gain, against forecast for a rise of 0.6% month over month. The annual rate jumped to 5.0% year over year and October data were revised higher to 4.2% year over year from 3.8% year over year reported initially.
The Federal Reserve raised their Fed Funds target lending rate by 25 basis points to 25-50 basis points. This was the first rate increase by the Fed in more than 9-years and represents a move toward normalization. 2-year U.S. yields rose relative to U.K. yields driving the interest rate differential in favor of the U.S.
The U.K. CBI industrial trends stronger than expected, with the total orders reading moving up to -7 from -11 and the export orders reading jumping to -18 from -29. Both are still stuck in negative territory, but the numbers are much better than the consensus and a good sign for the overall outlook.
The GBP/USD dropped below 1.50 to 1.4923, and poised to test the November lows at 1.4890. Resistance is seen near the 10-day moving average at 1.5079. Momentum has turned negative with the MACD (moving average convergence divergence) index generating a sell signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal.
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