- The number of purchase orders slid from 58 to 56%
- Only 51% of all positions are long today
- 21% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
- Immediate resistance lies in face of the monthly PP at 1.5559
- The nearest support rests at 1.5511, represented by the weekly S1
- Upcoming events today: UK Trade Balance, US Average Hourly Earnings, US Non-Farm Employment Change, US Unemployment Rate
The British Pound was one of the worst-performing currencies on Thursday, as the MPC Official Bank Rate Votes disappointed. The Sterling lost the most against the Loonie (1%), the Kiwi (0.86%) and the Euro (0.75%), whereas held the most resilient versus the Swissie, losing only 0.38% against it.
The Bank of England said on "Super Thursday" that it remained on course to begin gradually raising interest rates in the UK early next year. BoE officials agreed to leave the central bank's benchmark interest rate at 0.5% and the size of its bond portfolio at £375 billion after this month's policy meeting. Minutes of BoE meeting, published along with the rate decision, revealed the decision was not unanimous, as Ian McCafferty voted for an immediate hike in the central bank's benchmark rate. McCafferty claimed a rate rise was necessary to keep inflation in check and to ensure that future rate lifts are smooth and gradual. In the BoE's quarterly inflation report forecasts showed that policy makers predict annual inflation to climb back to its 2% goal by the third quarter of 2017 provided that interest rates rise in line with expectations in financial markets.
While revising the inflation outlook, the growth forecast remained broadly unchanged, with median expectations for the annual GDP growth rate at 2.6%-2.7% throughout the coming quarters of 2015, while remaining just around a 2.5% annual growth rate within the whole of the forecast period, ending in the third quarter of 2018. The jobless rate forecast showed slightly higher unemployment rates in the near-term, with the median rate estimated at 5.6% in fourth quarter of 2015, then falling further to 5.2% in the final quarter of 2016, and 4.9% in the last quarter of 2017.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will be a story of Dollar strength rather than Sterling weakness.
UK Trade Balance and US Non-Farm Employment Change
The UK Trade balance is forecasted to worsen and show that more goods were imported than exported. The forecast stands at -9.2B, down from -8.0B; however, this is not the only event to influence the Cable today. The Sterling could still recover after Thursday's losses, amid the US Non-Farm Employment Change, which is expected to slightly decrease, although chances are we will see worse-than-expected figures, as the ADP Non-Farm Employment Change dropped a lot more than anticipated on Wednesday. Furthermore, the Average Hourly Earnings could be one of the reasons why the Payrolls declined, thus, poor figures might also turn up in today's release. Finally, the US Unemployment Rate, an important signal of overall economic health, could also rise if there are less jobs employed people expected.
Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross mentioned that "the main driver in many ways, as well as the main support in recent times, have been the expectations that the Bank of England will raise interest rates at some point next year, probably the beginning 2016."
GBP/USD poised to begin recover
The Cable sustained heavy losses on Thursday, as less-than-expected MPC members voted for an interest rate hike. As a result, the Sterling breached the three nearest supports and stopped falling at 1.5511, namely the weekly S1, close to the anticipated possible decline target. A correction is likely to take place today, as the weekly S1 appears to be providing rather strong support and technical studies keep giving bullish signals. Furthermore, the closest resistance, now the monthly PP, will doubtfully be reached, unless the US fundamentals disappoint too much.
Daily chart
On the hourly chart, the GBP/USD currency pair was seen testing the resistance trend-line once again, which caused the Cable to decline. The Sterling seemed to have stabilised around the 1.55 major level for the time being, as the bullish momentum is expected to be regained.
Hourly chart
Bulls now prevailing over bears
Bulls keep retreating, as only 51% of all positions are long today. Meanwhile, the number of purchase orders slid from 58 to 56%.
Other market participants now have a different outlooks towards the GBP/USD. The SAXO Group traders' sentiment remains bearish, as 55% of all their positions are now short (previously 61%). At the same time, OANDA's market sentiment has reached a perfect equilibrium today.
Spreads (avg, pip) / Trading volume / Volatility
21% of the poll participants expect the British Pound to cost between 1.60 and 1.62 dollars after a three-month period
According to the survey conducted between July 07 and August 07, 21% of traders assume the GBP/USD currency pair will cost between 1.60 and 1.62 dollars within three months. However, the second place now taken by the 1.58-1.60 price intervals, selected by 19% of the surveyed. The mean forecast for November 07, on the other hand, is 1.5837.
Following hopeful development of the pair during July 27-31 week, participants of our weekly Community Forecasts quiz decided to become much more bullish on the Cable, as currently only 30% of them support movement to the south.
Kanbarsky, one of the Dukascopy Community members, has a bullish outlook towards the Sterling this week. He said that "the GBP is on a bearish long-term trend, but on the short-term until Friday, it is in a correction up and might reach the above targets." However, some traders, like iiivb, retain their bearish perspective towards the Cable. He expects Yellen's comments to accelerate a bullish USD sentiment across the board. "At a slower pace Cable should follow Euro prices, although, Cable must clearly break below 1.55 price to accelerate a bearish direction", he mentioned.