Reading The Pound?s Tea Leaves
Today’s Spotlight Market
The British Pound has been a recipient of a flight to safety over the past few months of the Greek debt crisis for traders who wished to lessen their direct Euro exposure. However, the strengthening Pound may be hurting UK growth. Consistently steady USA job growth is adding to the speculation of a September Fed rate hike, which may also hurt the British Pound in upcoming months.
Fundamentals
There were mixed signals from the August 6th Monetary Policy Committee (MPC) of the Bank of England. They left the Bank Rate at .5%, but this vote was an 8-1 decision rather than a unanimous vote, which had been the standard over past months. However, many Bank watchers were expecting the MPC to be more hawkish, with an expectation that 2 or 3 members of the MPC would vote in favor of a rate increase. The continued low energy prices have kept inflation well under the Bank of England?s 2% goal. This is causing speculation that any rate hikes will be pushed into 2016. The Pound fell sharply during August 6th trading, but then recovered as Bank Governor Mark Carney announced that a rate increase was, ?Drawing closer.?
Technical Notes? -? View Today’s Chart
Turning to the 3-month continuation chart, we see the Pound in a very narrow trading range recently. The 20- and 50-day Simple Moving Averages (SMAs) overlap each other. After the MPC announcement, the British Pound did break below both the SMAs, perhaps signaling the start of a bearish trend. 14-day Relative Strength Index is at a neutral 41.93.
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