The Bank of England left its monetary policy unchanged at its March meeting on Thursday. Eight of nine policymakers voted to keep the key interest rate at the record low level of 0.25%. Kristin Forbes, who is due to leave the BoE in June, cast the sole vote in favour of raising interest rates to 0.50%, adding that she was feeling uncomfortable keeping interest rates on hold. According to her, the post-Brexit economic slowdown has not materialised yet. Analysts suggest that the key policy rate will remain unchanged until the Brexit situation becomes clearer. All of the BoE's officials voted anonymously to maintain the asset-buying plan at 435 billion pounds, as markets expected. At the meeting, policymakers stated that slow wage growth and rising inflation, driven by the sharp fall in the value of the Pound, started to put downward pressure on British consumers.
Earlier this week, the ONS reported that wage growth fell to 2.2% during the three-month period to January. This drop called into question the BoE's 2017 wage growth forecast of 3%. The BoE also said that it could tolerate a quicker pace of price rises, following a decade of below-target inflation. After the release, the Pound rose to 1.1518 against the Euro and 1.2363 against the US Dollar.
US fundamentals in focus again
GBP/USD stable above 1.23
The British Pound was able to post more gains against the US Dollar on Thursday, ultimately closing at a fresh two-week high of 1.2363. The Cable's volatility was limited by the resistance around 1.2370, formed by the weekly R2 and the 55-day SMA. This tough area is likely to prevent the Sterling from appreciating again today, being a minor setback on the pair's path towards retesting the down-trend around 1.2450. Nevertheless, a bearish development is anticipated today, but with the exchange rate retaining position above the 1.23 mark. Technical studies are now able to confirm the possibility of the negative for the Pound outcome.
Daily chart
Hourly chart
Traders mostly bullish
Market sentiment remains strongly bullish, namely at 68%, but the number of purchase orders declined from 65 to 53% over the day.
A slightly less optimistic situation is observed elsewhere. For example, 62% of positions open at OANDA are currently long. This is more than the share of shorts (38%), more than sufficient for the sentiment to be called bullish. Meanwhile, sentiment at Saxo Bank is also bullish, with 65% of traders now being long and the other 35% being short the Sterling against the US Dollar.
Spreads (avg, pip) / Trading volume / Volatility
Traders expect the Cable to keep falling
By the end of the next three months traders expect the Cable to fall under the 1.22 major level, as 55% of survey participants believe so. While the current price is around 1.22, the average forecast for June 17 is 1.2311. The 1.20-1.22 ranges is now the most popular price interval, having 16% of the votes, while on the second place is the 1.18-1.20 price range, with 15% of poll participants choosing it. Furthermore, the 1.14-1.16 and the 1.28-1.30 intervals were chosen by 13% of the voters.