GBP/USD: Carney signals gradual rate hikes
Macroeconomic overview: Bank of England Governor Mark Carney said on Monday that Brexit is likely to hurt Britain's growth prospects in the short term and push up inflation as the country adjusts to life outside the European Union.
In a speech that immediately drew criticism from some Brexit supporters who have previously criticised his stance on the EU, Carney warned that Britain would face a cost for reworking its trade relationships.
In the short term, the weakening of trade ties with its EU partners would not be offset by new agreements with other countries, he said, as he repeated his argument from last week that interest rates would probably need to rise soon.
The BoE surprised financial markets last week when it said most of its policymakers thought it was likely that interest rates would need to rise in the coming months, if the economy and price pressures keep growing.
In his speech on Monday, Carney reiterated that message that record low interest rates could rise in coming months, but added that "any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent".
Sterling retreated on Monday from its highest level since the Brexit vote, after Carney said any coming interest rate rises would be limited and gradual.
We expect the BoE will hike interest rates at November meeting.
Investors are now preparing for potentially more hawkish statements from the Federal Reserve after its two-day policy meeting ends on Wednesday. The Fed is widely expected to announce this week that it will start paring its balance sheet, with the reductions seen likely to start this year.
It is expected to keep rates on hold, but investors will be watching for fresh hints on the chances of another rate rise this year and how many could be expected in 2018.
Technical analysis: Gains consolidate after last week’s rally to 1.3618, the highest for cable since June 2016. The next target for GBP/USD bulls will be 1.3673 (61.8% fibo of 1.5022-1.1491 fall in 2016). A slight corrective move cannot be excluded first.
Short-term signal: Buy at 1.3300
Long-term outlook: Bullish
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Macroeconomic overview: Bank of England Governor Mark Carney said on Monday that Brexit is likely to hurt Britain's growth prospects in the short term and push up inflation as the country adjusts to life outside the European Union.
In a speech that immediately drew criticism from some Brexit supporters who have previously criticised his stance on the EU, Carney warned that Britain would face a cost for reworking its trade relationships.
In the short term, the weakening of trade ties with its EU partners would not be offset by new agreements with other countries, he said, as he repeated his argument from last week that interest rates would probably need to rise soon.
The BoE surprised financial markets last week when it said most of its policymakers thought it was likely that interest rates would need to rise in the coming months, if the economy and price pressures keep growing.
In his speech on Monday, Carney reiterated that message that record low interest rates could rise in coming months, but added that "any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent".
Sterling retreated on Monday from its highest level since the Brexit vote, after Carney said any coming interest rate rises would be limited and gradual.
We expect the BoE will hike interest rates at November meeting.
Investors are now preparing for potentially more hawkish statements from the Federal Reserve after its two-day policy meeting ends on Wednesday. The Fed is widely expected to announce this week that it will start paring its balance sheet, with the reductions seen likely to start this year.
It is expected to keep rates on hold, but investors will be watching for fresh hints on the chances of another rate rise this year and how many could be expected in 2018.
Technical analysis: Gains consolidate after last week’s rally to 1.3618, the highest for cable since June 2016. The next target for GBP/USD bulls will be 1.3673 (61.8% fibo of 1.5022-1.1491 fall in 2016). A slight corrective move cannot be excluded first.
Short-term signal: Buy at 1.3300
Long-term outlook: Bullish
GrowthAces.com - your daily forex signals service