The British Pound was broadly higher against the other major currencies on Wednesday following the dovish BoE minutes. The pound climbed above 1.5000, reaching 1.5080 mid-Wednesday, after the BoE minutes but may not stay there for long as the uncertain elections approaching.
The Monetary Policy Committee kept its 9 - 0 - 0 pattern to keep the interest rates unchanged, but two of the officials were “finely balanced” for their vote. The BoE Minutes flagged a light turn to the hawkish direction. Policymakers clarified that they still expect deflation in the next months and continuous lower than the Central Bank’s target for the rest of the year. However, they believe the recent sharp decline in Inflation was probably caused by the stronger pound that affected prices sooner than anticipated. Thus, when the current downward forces will be eliminated, the Inflation Rate could recover at a steeper pace and bounce back to strong inflation as MPC said.
Meanwhile, both Inflation Rate and Wages will be closely monitored as a strong economic growth is unlikely to firm without high inflation and wages. Furthermore, policymakers were more concentrated on the upside pushes on the British inflation from the Eurozone than the previous months as the Eurozone’s economy started to pick up due to the QE program. Moving ahead, the general election in the UK scheduled next month is set to take center-stage as we step in May.
The GBP/USD pair is trading slightly below the psychological level of 1.5000 in early trading. For the time being the pair is finding support from the 50-period SMA as well as the 200-period SMA at the 1.4850 level. On the upside, the index needs to clear resistance at 1.5080, before testing its monthly high at 1.5170. This is a significant level since it coincides with the descending trend line which started back in August 2014, as well as the 23.6% Fibonacci retracement level.
For the moment the picture looks a shade more bullish than bearish, with 4-hour MACD still positive, but today’s turnaround in the short-term Relative Strength Index (RSI) might signal a possible turnaround if the pound can hold yesterday’s gains.
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