Renewed Brexit fears led to a slide in British Pound on Wednesday. The risk-off tone in the equity markets further added to the bearish pressure. Thus Cable breached the falling trend line support (then, now a resistance) and ended the day at 1.4149 levels. The main even for the day is the Fed rate decision and a possible outcome and resulting effect on GBP/USD and Gold is discussed here (Macro Scan).
BOE rate cut bets are rising
Latest Bloomberg survey showed economists put the probability of a BOE rate cut in 2016 at 23%. The probability stood at 10% a month ago. Market based measures (implied probability of hike/cut) shows a higher possibility of a rate cut in 2016. Markets see 12.5% probability of a rate cut in September and 13.7% in December. Meanwhile, rate hike probability stands at 1.7% in September and 8.6% in December.
A slowdown in the wage growth and dismal labor market data release could push up rate cut bets and weaken Pound. Apart from the data, markets would also keep a close eye on UK budget and new economic and fiscal estimates from the OBR. New estimates are likely to take into account a possibility of Brexit and thus paint a weak picture. This is likely to be referenced by the BOE statement tomorrow.
Technicals –Breaks below 50% Fibo
Sterling’s bearish daily closing back inside falling trend line (red) and below 1.4164 (23.6% of 1.5230-1.3835), followed by a break below 1.4136 (50% of 1.3835-1.4436) indicates the currency could test support at 1.4079-1.4065.
A violation there would expose 1.40 handle.
On the other hand, a recovery above 1.4117 (Mar 10 low) could see the spot re-test 1.4164 (23.6% of 1.5230-1.3835), but the bearish invalidation is seen only in case of a break above 1.4220 (rising trend line resistance).
A break above 1.4220 would shift risk in favor of 1.4284, which is followed by a hurdle at 1.4330.
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