The GBP/USD has Turned the Corner: Bears in Control
Rowan Crosby • 2 min read
The GBP/USD was the big news story of Thursday after it was hit hard and sold-off. The momentum ramped up because BOE’s Carney came out and said that he didn’t want to get too focused on the exact timing of the next rate hike.
That wasn’t what the market wanted to hear as many had all but locked in a rate rise in MAy. The comments have cast massive doubt on exact time when rates will increase. It appears that the chance of a hike was very high prior to the comments and that needed to be unwound.
It comes on the back of a weak CPI print and while I’m sure the BOE is very eager to get rates moving upward. We also saw weak wage growth this week. They don’t want to take rates too high too fast and risk slowing down the economic growth that the country needs.
We must remember that the key role of a central bank is to keep inflation under control.
A similar issue is with Brexit. A higher pound appears to be pricing in things to get well with Brexit. And what we should all realise is that any political process is not remotely perfect. That would make me think the GBP/USD has some more downside potential.
I am expecting a bounce at some point, however, we will need to find an equilibrium level for what the true rate of interest rises might be.
My first target will be 1.4000. That is more than achievable based on the ATR and it is also a location where we’ve had support in the past. And of course, it is a round number which is important, but especially so for currencies.
Support will come so that is where I’ll be focused on Friday.