Fundamental Forecast for Pound: Bullish
- GBP/USD Sinks Below 1.7075 As BOE Voted 9-0 To Leave Rate Unchanged
- British Pound Breakdown Might be the Real Deal
The GBP/USD faced a larger correction going into the end of July as the Bank of England (BoE) Minutes showed a unanimous vote to retain the current policy, but the fundamental outlook continues to generate a bullish bias for the British Pound as central bank Governor Mark Carney sees the spare capacity in the U.K. economy being used up faster than expected.
It seems as though the Monetary Policy Committee (MPC) is moving
closer to normalizing monetary policy as ‘some’ members see less risk
of a rate hike derailing the economic recovery, and it appears as
though a growing number of central bank officials are showing a greater
willingness to raise the benchmark interest rate later this year as
the underlying momentum in the U.K. economy looks ‘more assured.’ Despite the lackluster 2Q U.K. GDP print,
the International Monetary Fund (IMF) continued to raise its economic
forecast for the region, with the group now calling for a 3.2%
expansion in 2014 versus an initial forecast for a 2.9% rise.
As a result, the BoE’s Inflation report due out on August 13 may
further boost the appeal of the sterling should the central bank adopt a
more hawkish tone for monetary policy, and the GBP/USD looks poised to
retain the bullish trend carried over from the previous year as the
Federal Reserve remains reluctant to move away from its highly
accommodative policy stance.
With that said, we are still looking for a higher-low in the GBP/USD
as price continues to hold above channel support, and the Federal Open
Market Committee (FOMC) interest rate decision on July 30 may serve as
the fundamental catalyst to spark a resumption of the bullish trend
should Chair Janet Yellen continue to highlight a dovish tone for U.S.
policy.
