- Mark Carney, BoE Governor
The cable was set to become one of the top performers this year, the same as NZD/USD or USD/JPY. The main driver in all three pairs was not the greenback, as U.S. central bank was supposed to slowly reduce the pace of its bond-buying programme. Nonetheless, Janet Yellen's first FOMC meeting caused a stir in the financial markets, pushing the cable to 1.65. The pair was considered as an overbought already and a period of correction was needed. Fed's comments, and the upcoming rate hike provided a significant bullish bias to the U.S. Dollar.
Before this week's Yellen's announcement investors were preparing for a rate hike from the BoE in Q2 2015, making the U.K. the first G4 economy to tighten its monetary policy. This week, however, the overnight U.S. Dollar swaps market is predicting the Federal Reserve will pip the Bank of England, making a rate hike in March 2015. Such a decisions eliminates spread between the U.S. and U.K. government 10-year yields, which turned into a negative territory soon after the FOMC meeting, hitting the lowest since August 2013. All these developments are having a significant impact on the cable. The Sterling diverged from its yield spread in the beginning of February and pushed higher, suggesting it can be a time for the Pound to play catch up with the U.S. Dollar. In case investors will start pricing in a potential rate hike from the Fed, GBP/USD can move significantly lower.
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