Cable To Breach 1.50?

by | Jan 9, 2015

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UK and US flags

Neil Davies, Head of Trading at PlutusFX, takes a look at the GBP/USD currency pair.

GBP/USD failed to breach the 1.5 mark this morning at the first time of asking, bouncing off 1.5035 in a minor relief rally up to now stand at 1.507. This follows a significant move down since the turn of the year when it stood at 1.557.

As expected, the Bank of England today did nothing to attract funds into Sterling by keeping interest rates at their historic low of 0.5% alongside an unchanged bond-buying programme. With Brent crude hitting sub $50 a barrel and inflation at a 12 year low of 1%, rather than there being a need to look at a rise, the BoE will no doubt be harbouring concerns of following the Eurozone into deflation. Last summer’s expectations of a 2015 Q1 rise are now long forgotten and it will be interesting to see when the minutes are released whether the 2 members who have been voting for a rate rise of late have continued their stance. The market is now expecting no change until 2016.

Over the water the Federal Reserve minute’s released yesterday showed a rate rise before April as being unlikely, although they saw the US economy extending its recovery, with concerns over international factors which pose risks to the domestic picture.

The driver for the pair over the next few months then is unlikely to be comparative rates. What is of most concern is sentiment, in particularly surrounding uncertainty over the result of UK elections in May. With the potential of another hung parliament, the closer we move to May the more those looking for a safe haven will look elsewhere than Sterling, though a victory for the incumbent government could be the turning point for the long term downward trend. In the meantime somewhere in the 1.40’s is a distinct possibility.

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