The UK Inflation Report Hearings yesterday caused the British currency to post solid gains across the board. The Sterling gained the most against the Euro and the Japanese Yen, adding 1.77% and 1.74%, respectively. Other significant surges were seen against the Aussie, namely 1.61%, followed by the Swiss Franc (1.44%) and the New Zealand Dollar (1.42%). However, against the remaining commodity currency, the Loonie, the Pound managed to edge only 0.90% higher, which was the worst Sterling-cross performer. At the same time, the GBP/USD currency pair advanced 1.05%, somewhat limited by the Greenback's strength.
Bank of England Governor Mark Carney defended the central bank's decision to highlight the risks of exiting the European Union, coming under renewed accusation from a lawmaker, who has been attacking Carney brutally on his role in the Brexit debate. Carney said the BoE sees Brexit as the biggest domestic risk to financial stability, and agreed that Brexit could cause the Pound to fall, creating an upside shock to inflation that would make it harder to keep interest rates low. The Governor said that if the UK stays in the EU, the next move in interest rates would probably be up. However, if Britons vote to leave the EU, there is a lower chance of a hike. Deputy Governor Ben Broadbent pointed out that the UK economy appears to have slowed quite sharply this year, while it is unclear how much of the slowdown was °triggered by the Brexit concerns. Jacob Rees-Mogg, a eurosceptic lawmaker, who has previously blamed Carney of venturing into politics with his Brexit warnings and urged him to resign, kept up his criticism. At the same time Andrew Tyrie, chairman of the committee quizzing Carney and other BoE officials, said lawmakers would have criticized the Governor if he had stayed silent on Brexit.
Prime Minister David Cameron and finance minister George Osborne are leading the campaign to keep the country in the EU. The finance ministry has issued similar warning to Carney.
US Markit Services PMI and US House Price Index
GBP/USD to undergo a correction
The Sterling overperformed on Tuesday, as it surged over the 1.46 level and closed at 1.4635. The bullish reaction was sparked by the TSC report yesterday, but today there is no impetus present that could cause the Cable to edge higher again. Even if bulls manage to push the Pound further up, the tough resistance cluster, represented by the weekly R1, the Bollinger band and the down-trend, should limit the gains. The bearish outcome, however, is more probable, with the nearest support unlikely to be reached, as it is located only at the 1.45 major level.
Daily chart
Hourly chart
Bears now in the majority
Market sentiment remains bearish, now at 56%, compared to 52% on Tuesday. Meanwhile, all pending orders are equally divided between the buy and the sell ones.
At OANDA market sentiment worsened over the day, as 52% of their open positions are now short, compared to 51% on Tuesday. Meanwhile, the sentiment at SAXO Bank worsened again, as bears now take up 61% of the market, compared to 53% yesterday.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.46 in three months