Cable advances, but upside is capped as BOE sentiment weighs
The British pound advanced against the US dollar on Monday, consolidating higher after Scotland voted against independence last week in what was a more lop-sided victory for the No vote than previous polls had suggested. However, cable’s gains were capped as investors shifted their attention to the Bank of England, which is expected to keep a hands off approach to monetary policy for the rest of the year.
The pound-to-dollar exchange rate, commonly referred to as cable, climbed to an intraday high of 1.6366. The pair would subsequently consolidate at 1.6366, advancing 0.28 percent. The pair is likely supported at 1.6207, while resistance is ascending from 1.6559.
The GBPUSD rose to a fresh two-week high on Friday after Scotland voted against independence. The No vote took 55 percent of the votes, with the pro-independence camp accounting for the remaining 45 percent. Friday’s vote ended a tumultuous period for the British pound, as investors mulled the potential fallout of an independent Scotland.
The pound was stronger across the board on Monday. The EURGBP dipped 0.13 percent to 0.7865. The pair is likely supported at 0.7829. Initial resistance is likely found at 0.7904.
The struggling Japanese yen continued to slide on Monday, as the GBPJPY advanced 0.27 percent to 178.06. The pair faces initial support at 176.47 and resistance at 179.72.
The yen has been in free fall ever since a government report said the Japanese economy contracted faster than forecast in the second quarter, fueling speculation the Bank of Japan was ready to consider additional stimulus measures to boost growth.
Japan’s gross domestic product contracted 7.1 percent annually in the April to June period, the Japanese government reported on September 7. The pound-to-yen exchange rate has advanced 4.5 percent since the GDP report was released.
With Scotland’s independence vote out of the way, the markets shifted their attention back to the UK economy, which is showing signs of cooling in the second half of the year. A broad slowdown in manufacturing and lagging labour productivity have weighed on the Bank of England, which indicated interest rates are likely to remain accommodative for a while longer to account for excess slack in the economy.
Productivity growth, measured in total output per hour worked, declined 0.1 percent in the first quarter of this year, the Office for National Statistics reported earlier this summer. That followed no growth in the fourth quarter of 2013 and a modest 0.2 percent increase in the third quarter.
Weak labour productivity has fueled a much larger debate about the labour market recovery, which is producing below trend wage growth. Average wages are trending at less than half the rate of inflation, prompting the BOE to slash its wage growth forecast in half. The BOE now expects wages to grow 1.25 percent this year.
Average earnings excluding bonuses grew at an annual rate of 0.7 percent in the three months through July, the ONS reported earlier this month. Annual consumer inflation was 1.5 percent in the 12 months through August.
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