Sterling displayed a fairy messy knee-jerk reaction in the immediate aftermath of the BoE's policy decision this month. Putting the momentary whipsaws aside, however, GBP/USD has settled and currently stands little changed from pre-announcement levels. Economists at TD Securities note that cable continues to exhibit all the hallmarks of a range-trade and highlight the key levels to watch.
Near-term risk backdrop calls for a still cautious view on GBP/USD
“The MPC simply delivered few surprises to the overall market. As such, the decision to taper asset purchases looks fully priced. As a final component, part of the underwhelming response could be the result of the way in which the move was communicated.”
“We think the FX market will still see this as a policy shift – at least at the margin. Superficially, it is simply the confirmation of the BoE's earlier intent to draw a line under its latest balance sheet expansion. Together with the Norges Bank, the BoC, and – perhaps – the RBA, we now have a subset of DM banks that are moving toward a change of tone, at least to varying degrees. This should help solidify sterling's fundamental footing relative to some of its major trading partners. However, this is likely to play out only over the medium term.”
“A break higher looks path-dependent upon both a softer NFP reading and a pledge by the Scottish pro-independence factions not to pursue an immediate referendum if they achieve the expected majority in the local parliament. That set of outcomes would likely be followed by another test of the recent range highs in the 1.4000/10 zone. A clear break above would naturally target a move toward the late February peak at 1.4237.”
“We think dip buyers are likely to emerge first around 1.3800, while the double-bottom at 1.3670 should provide fairly robust support at this stage.”
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