The Pound Moves Lower After First Carney BoE Meeting
The Bank of England met today to determine monetary policy with new governor Carney taking the helm. Unlike other central banks, when the BOE decides not to change monetary policy it does not follow with a statement. Therefore market participants are left will little new information on the state of the economy or what the central bank is thinking. Traders will need to wait until the minutes are release on July 17 to understand what the central bank is considering.
Carney seems to be in an interesting situation. He left Canada as the economy was slowing and now is arriving in the UK as the economy is beginning to pick up. Carney is only part of a larger change at the BOE. He will have two new deputies and a reformulated charter over the next twelve months. He is generally considered a hawk which means he is unlikely to vote on a quantitative easing program unless he is sure that the UK is dipping into a recession.
Longer term Yields in the UK has climbed nearly 40 basis points over the course of the last two months which is low when considering that the US 10-year yield has climbed more than 100 basis points during the same period. The differential between the US and UK yields has forced the pound lower into a short term down trend.
The GBPUSD has moved lower during the last month after testing the 1.57 level in early June. Resistance is seen near the 10-day moving average at 1.53, while support is seen near an upward sloping trend line at 1.51. Negative momentum continues to gain strength with the MACD printing at its lowest level in the past six months. The trajectory of the MACD continues to point to a lower exchange rate as the spread continues to diverge from the 9-day moving average of the spread.
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