Sterling Gets Help From BoE Projections

by on November 14, 2013 12:42 am GMT

Those long Sterling into the inflation data yesterday got their faces ripped off, but, oddly, the Pound rallied heavily after the Bank of England (BoE) reported that an increase in the benchmark rate given the economy continues to improve.

Sterling increased against all 16 major peers. The Claimant change data showed there was a decline of 41k individuals signing up for unemployment benefits, and the unemployment rate dropped a tenth of a percent to 7.6 percent.

The BoE forecasted that the seven percent threshold for higher rates would likely to be hit in the third quarter of 2015. This was a change in guidance which suggested that the unemployment target would not be hit until the second quarter of 2016.

BoE governor Mark Carney aimed to quell the overly optimistic saying that seven percent unemployment is not an absolute trigger for a rate hike. Carney said “when the threshold [for unemployment] is reached, the MPC will set policy to balance the outlook for inflation against the need to provide continued support to the recovery.”

GBPUSD has rallied hard over the last session, but the next few sessions will begin to carve out whether the move will be faded or continue higher. There is room to move higher on the intraday chart with a supply zone hanging just above 1.61 that proved to be a selling point into the 30-day low of 1.5853. The 20, 50 and 200 EMA are sloping up which is encouraging for Pound longs, but a pullback to 1.6025 is likely given the large move from the monthly low.

4H Chart of GBPUSD

4H Chart of GBPUSD