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Euro Gains against the Pound Following Neutral BoE Minutes

David Becker
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The Euro gained against the pound despite minutes from the BoE that showed an unanimous vote for rates to remain at current levels. The post-ECB at 0.7959 is the key downside level, which is expected to fall, with the early-week lows. Wednesdays the Fed announcement to provide further fuel for bears. Fed chair Yellen will likely indicate that slack remains in the system, we also expect a slightly more upbeat assessment of the economy and labor market.

The BoE MPC June minutes showed unanimous votes for unchanged policy, which left the repo rate at 0.5% and the QE total at GBP 375 billion. There had been some speculation that Weale would have become the first of the nine-committee members for vote for a tightening, but this did not happen. The minutes did reflect an increased hawkish leaning, as already flagged by Carney, Bean and Miles over the last week.

The minutes noted that the economy could maintain its pace of growth and slack that would be absorbed more quickly than had previously been expected. The minutes balanced this by noting that, “If policy were tightened prematurely however, that could be associated with considerable costs in terms of lost output.” The minutes initially sparked a rally in sterling, but the move has subsequently more than reversed. The phrase “considerable costs” with regard to tightening too early reinforces the idea that a rate hike before year-end is a possibility rather than a probability, which is what the market seems to be taking as the BoE’s intended message.

The cross will likely test resistance near the 10-day moving average near 0.8042. Support is the post-ECB low near 0.7959. The RSI (relative strength index) has turned higher with price action reflecting accelerating positive momentum, while printing near 32, after being oversold last week.

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