GBP / USDPRINCIPLE ATTENTION:
- The BoE announces the exit sequence
- EUR / GBP Edge toward YTD Low
BoE Summary: The most notable withdrawal from the BoE meeting was the update of the exit sequence, where the BoE lowered the bank interest rate threshold to scroll its balance sheet from 1.5% to 0.5%. Moreover, as the BoE acknowledges that if the economy is expected to grow as expected, modest tightening is likely to be needed, market participants have raised expectations about the timing of interest rate hikes, giving a bank interest rate of 0.5% by December 2022 with short pound futures.
The view of policy normalization is in stark contrast to the ECB and therefore Pound can be held upside down Euro. In turn, if the EUR / GBP breaks below the psychological 0.8500 handle, the cross pushes the YTD to its lowest level of 0.8470, while all bounces are likely to be sold in. Unlike the back end of the first quarter, EUR / GBP has not been resold at intervals of more than 0.8500 as before. However, it is important to re-evaluate the cross-test at 0.8500, failure to do so may show weak short strokes in the case of a 0.8500 breach, leading to a postponement in euros / pounds, while limiting the 0.8500 cap may add credibility to a negative break.
EUR / GBP chart: daily schedule
GBP /USD: Strong NFP the report has led the couple to close the week around where it started, and again below 1.3900. In light of the NFP report, this will make the Jackson Hole Symposium a live broadcast to signal the details of a possible narrowing of QE. This would be somewhat relevant, as it would mark the anniversary of the announcement of the first inflation target. This means that by reaching a short-term bottom in US yields, the USD could maintain its bid heading in JH and thus put Cable backwards. The downside is that the support is located at 1.3870 and 1.3850, with the 1.4000 area bulls at the top being the key factor.
GBP / USD chart: daily schedule
What to watch next week
At the beginning of next week, the calendar is relatively easy for the UK, with only the UK’s second quarter GDP report to be published. The quarterly figure is 4.8%, which means that GDP would be below 3% of pre-Covid levels. This means that I do not expect these figures to be significant drivers for the currency, given that this is unlikely to change BoE’s thinking. It will be recalled that the BoE continues to forecast 7.25% of GDP by 2021. Therefore, the USD side of the equation may be a larger determinant, as the US CPI is the main highlight of next week’s economic calendar.