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Status quo at BOE leaves sterling directionless

H.S. Borji
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Status quo at BOE leaves sterling directionless

The British pound was little changed against its major peers Wednesday, as the Bank of England maintained status quo by leaving interest rates unchanged for the sixty-eighth consecutive meeting.

The pound was little changed against the US dollar, as cable continued to drift below the 1.61 region. The GBPUSD was trading at 1.6089, declining 0.05 percent. The technical charts show initial support likely found a 1.6038 and resistance at 1.6142. Cable has gained 0.8 percent since Monday following a sharp sell-off that was triggered by a strong US nonfarm payrolls report.

The pound weakened against the euro, as the EURGBP advanced 0.1 percent to 0.7877 after reaching an intraday high of 0.7886. Initial support is located at 0.7847. On the upside, resistance is ascending from 0.7885.

The euro has declined 1.4 percent against the pound in the last month and more than 5 percent since the beginning of the year. A weaker euro-to-pound exchange rate weighed on UK manufacturing output last month, as businesses looked to North America and the Middle East to offset declining demand in the Eurozone.

The Eurozone is wrought with geopolitical concerns, weak fundamentals and declining consumer confidence. A spiraling euro area could strain the UK’s export industries, which have been flagged by the Bank of England as a lagging part of the economy.

The pound was little changed against the Japanese yen, as the GBPJPY consolidated at 173.91. The pair faces initial support at 173.33 and resistance at 174.79.

In policy news, the Bank of England left interest rates and the size of its asset purchase facility unchanged today, as expected by the consensus. The minutes of the meetings will be released October 22.

The Monetary Policy Committee – the organization tasked with setting interest rates – is weighing latest developments in the economy against disappointing earnings growth, which according to policymakers is giving the central banking authority the scope it needs to maintain highly accommodative policies.

The minutes of today’s meetings are likely to show another split vote on interest rates. MPC members Martin Weale and Ian McCafferty voted in favour of a rate-hike in the last two meetings, maintaining that broad improvements in the labour market would eventually translate into higher earnings growth.

The BOE is expected to raise interest rates before the United States Federal Reserve, according to Goldman Sachs chief UK economist Kevin Daly. That sentiment is shared by the markets, although recent developments in the US suggest the Fed could begin to tighten policy sooner than previously expected.

The UK economy grew 0.7 percent in the third quarter, according to the National Institute of Economic and Social Research. That follows a 0.9 percent growth pace in the second quarter.

The Office for National Statistics will release an official preliminary estimate of third quarter growth October 22.

The UK economy is expected to outpace the rest of the G7 countries this year, according to a revised forecast from the International Monetary Fund. UK GDP is on pace to grow 3.2 percent this year, before moderating at 2.7 percent in 2015, the IMF said yesterday.

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