GBPUSD Brexit uncertainty means BoE hike unlikely

Since last night’s FOMC meeting, we have had two other major central bank rate decisions and some key data as well. But there is one last major central bank policy decision still to come in less than an hour’s time: The Bank of England. With the UK parliament’s vote on the EU withdrawal agreement not expected until January, you can almost rest assured that the BOE won’t be hiking rates today. So, don’t expect too much volatility in the pound. Boosted from the earlier retail sales data and dollar selling, the GBP/USD has now climbed back to the 1.27 handle ahead of the BoE.

Fed somewhat less dovish, but dollar resumes slide

Ahead of what could be a much quieter Christmas week, we now have one-and-a-half days left of normal trading this week. The much-anticipated Federal Reserve rate decision came to pass. As my colleague Matt Weller reported yesterday, the Fed was somewhat less dovish than expected but it still defied Donald Trump and hiked rates. The dollar initially jumped, and stocks slumped as the probability of a hike was around 70% and therefore not fully priced in. The Fed noted that “some further gradual increases” in interest rates are expected, but lowered its inflation and growth forecasts, while, according to the dot plots, the median policymaker now expects just two rate hikes in 2019, down from three at the September meeting. After the initial bounce, the dollar selling has since resumed and stocks have managed to come back slightly, although still held back by ongoing global growth concerns.

Riksbank hikes but BOJ holds policy

Meanwhile the Bank of Japan again opted for no change in its policy, while Sweden’s Riksbank hiked rates to -0.25% from -0.50%, sending the Swiss krona sharply higher. Earlier, New Zealand’s third quarter GDP estimate disappointed, printing 0.3% growth versus 0.6% expected, while Australian employment data beat as jobs rose by a good 37,000 versus 20,000 expected.

GBP/USD back to 1.27 handle, boosted by retail sales and dollar weakness

As mentioned, there was some good news for UK retailers: sales jumped by a much-larger-than-expected 1.4% month-over-month in November as shoppers took advantage of Black Friday sales. The pound liked the news, sending the cable back up to the 1.27 handle. It was boosted further by widespread dollar weakness.

Technically, the GBP/USD is still in a downtrend, but the selling pressure has waned, and I wouldn’t rule out the possibility for a sharp short-squeeze rally here given the extremely negative sentiment towards the pound at the moment. Also, the Brexit vote is several weeks away, so I don’t think there’s much urgency for speculators to suddenly ramp up the selling pressure. Still, we would prefer to have a stronger view on the cable once there is more clarity regarding Brexit. Technically, the short-term bias would only turn bullish upon a break above its most recent high at 1.2840.

Source: TradingView and FOREX.com.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.