The Sterling's performance was mostly mild on Thursday, as there were significant movements registered only against three major currencies. The largest gain of 0.70% was recorded against the Australian Dollar, as the inflation expectations in Australia dropped to the lowest level in eight months. Another significant gain of 0.57% was seen versus the Japanese currency, as risk appetite kept driving the Yen higher. At the same time, the Pound edged 0.46% higher versus the Euro, but remained relatively unchanged against the Buck, surging only 0.02%. The GBP/NZD pair remained completely unchanged, while the Sterling sustained a 0.04% loss against both the Swissie and the Loonie.
The Bank of England warned Britain's economy would slow sharply, and could even slide into recession, if Britons voted to leave the European Union. The central bank added the Pound could decline sharply, while unemployment would probably climb. Consumers could delay spending and companies may postpone investment decisions. BoE Governor Carney said there were limits to what the BoE could do in response to an "Out" vote. Opinion polls show British voters have been relatively resistant so far to warnings about the economic costs of Brexit, with voting intentions in many polls roughly evenly split.
The Bank of England's May Inflation Report estimates that inflation will return back to the 2% goal by mid-2018, with the Brexit uncertainty weighing on the short-term growth outlook. Given the current threats, even with the UK remaining part of the EU, the BoE is not expected to hike interest rates before 2018. Also, the BoE revised down its outlook for short-term growth to 2% in 2016, from 2.2% predicted in February. At the same time, the BoE also lowered the GDP outlook for 2017 to 2.3%, from 2.4%, and to 2.3% from 2.5% in 2018. All forecasts in the May Inflation Report were made assuming that the British voters will support continued membership in the EU in the referendum.
US Retail Sales and PPI
GBP/USD risks falling under 1.44
The Sterling experienced substantial volatility on Thursday, but remained almost completely unchanged against the US Dollar, unable to stabilise above the immediate resistance in face of the 20-day SMA. The Cable could post more gains today, but the slowing bullish momentum suggests that bears are likely to take over. Moreover, daily technical studies are bolstering the possibility of the negative outcome, suggesting that the closest support, namely the monthly PP, is to fail to keep the pair from edging lower. In this case, the main target will be the 100-day SMA, located around 1.4359.
Daily chart
Hourly chart
Bulls now in the majority
There are still 60% of traders holding long positions today, unchanged since yesterday. At the same time, the number of orders to sell the US Dollar edged lower from 56 to 53%.
At OANDA the bullish market sentiment keeps growing, as 55% of their open positions are long, and the remaining 45% are shor. Meanwhile, the sentiment at SAXO Bank remains close to the equilibrium, as 53% of their open positions are currently short, unchanged since Thursday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD above 1.44 in three months