Super Thursday; not so super for the Pound

Sterling bulls were waiting for a rather hawkish tone by British policymakers on Super Thursday to capitalise on their open positions, but their expectations fell short as the GBP/USD failed to show gains.

Data released on Thursday from the Bank of England (BOE) swiftly got absorbed by the sterling and in a few words revealed no change in interest rates, while only one Monetary Policy Committee (MPC) member out of nine voted against this decision. During the same day, BOE Governor Mark Carney once again hinted that the rates could rise sooner than expected and temporarily fueled demand for the GBP/USD, but the upwards momentum was extremely short lived following the release of the BOE minutes. The report revealed that the MPC is still largely reluctant to proceed with a rate hike as only one out of nine members voted that the time has come for such an important decision. Analysts’ expectations were for two out of nine members to vote for a rate hike, so this shows that BOE still thinks that raising interest rates too soon could have more negative effects than positive given the current inflation levels.

Indeed, BOE halved its inflation forecast for 2015 from 0.6% to 0.3%, and most importantly now expects the rate to reach the 2% target in 2017. Traders’ forecasts for an interest rate increase before the end of this year have been dealt a major blow and there is now much less evidence for this to happen. The GBP/USD on Thursday digested in full the BOE’s downwards revisions and dropped by 0.6% to 1.55107. On a weekly basis, the currency pair decreased by 0.8% but found once again strong support close to the 1.55 level for the fifth week in a row.

The Nonfarm Payrolls data release on Friday by the U.S. Department of Labour showed that there was a monthly addition of 215,000 new jobs in July, while the unemployment rate remained unchanged at a seven-year low of 5.3%. Markets were expecting the employment sector to strengthen even more as there were forecasts for a 223,000 increase, while the previous month’s increase was 231,000, and that lifted the EUR/USD upwards. According to the same report, most of the gains were within the retail, health, and financial sectors. The labour market is viewed by the Federal Reserve (Fed) as an important measure of economic health and despite its failure to live up to analysts’ expectations, its performance could still lead to an interest rate increase before the end of this year. The EUR/USD however moved up on Friday after the NFP data release by 0.4% and ended last week’s trading at 1.09663.

Although some traders view the recent GBP/USD slip as the beginning of a clear downwards trend, there are others who instead find the current rate of the currency pair as a good opportunity to buy it. Future economic data releases might point once again that the British economy is in a recovery mode and bring sterling bulls back to action. Could the upcoming release of ILO Unemployment Rate, expected on Wednesday 12 August at 08:30 GMT, provide the spark for a trend reversal?

The post Super Thursday; not so super for the Pound appeared first on Forex.Info.

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