Pound Heads for Weekly Decline as Markets Skeptical on BOE Hikes

  • Traders not convinced of BOE’s smooth Brexit assumption
  • Weak industrial, trade data also weigh on British currency

BOE Sees Slower Than Anticipated Consumption Growth

The pound headed for its first weekly decline since the beginning of April, as a combination of weaker-than-expected economic data and doubts on the Bank of England’s ability to lift interest rates weighed on the currency.

Sterling fell on Friday, moving further away from the $1.30 mark which it came very close to earlier in the week, when there was talk that more than one Monetary Policy Committee member could vote for a hawkish dissent. The 7-1 vote on Thursday to keep rates on hold disappointed sterling bulls. The BOE’s comments that it could hike rates faster than markets expected if the Brexit process proceeded smoothly also failed to convince traders.

  • GBP/USD falls 0.2% to 1.2852, set for a weekly decline of 1.0%
    • Triple-top below 1.3000 handle defines short-term top as tests 21-DMA
    • Support at 1.2850, 21-DMA, May 11 low and resistance at 1.2949, May 11 high
  • EUR/GBP climbs 0.3% to 0.8455, resistance lies at 0.8439, 21-DMA
  • “The BOE assumes that there will a controlled Brexit with a transitional period. Following the development over the past few weeks that seems increasingly questionable,” writes Lutz Karpowitz, a strategist at Commerzbank AG, in a client note
    • There is little to support optimism as far as Brexit is concerned, certainly for the initial phase of the negotiations. “If reality starts to take control, sterling will unavoidably be amongst the losers”
  • Data released this week showed a widening of the trade deficit and weaker-than-forecast industrial output
  • Yield on 10-year gilts falls 2 bps to 1.13%
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