The Bank of England’s recent string of hawkish comments has turned the August MPC into a “live” meeting. Expectations of a likely halt to quantitative easing, according to TD Securities economists, should create a helpful tailwind for the pound in the coming weeks.
“Over the last 24 hours, the Bank of England has made some hawkish comments, prompting markets to raise their expectations for rate hikes. At least two MPC members believe the BoE’s forward guidance conditions on tightening have already been met, raising the probability of QE being stopped early at the August meeting and rate rises starting sooner than our current May 2023 prediction.”
“Over the following several weeks, expectations for a likely end to QE next month could provide GBP with a positive tailwind.”
“With the Fed Chair reiterating the FOMC’s “patient” posture this week, we believe cable has some room to recover from recent weakness. Since the beginning of the month, actual yield differentials have risen.”
“From a technical standpoint, momentum indicators had already began to turn more in sterling’s favor, while positive divergence on the daily RSI had begun to seep in.”
“We’d be shocked if cable traded below the early-July trough of 1.3733 at this point in the market cycle unless there was a compelling cause to do so. We’d expect bids to appear between the 200-DMA (1.3693) and 1.3671 there.”
“In the run-up to 5 August, we believe cable will drift toward the higher end of recent ranges at 1.4250. The recent range peaks (1.3910) are likely to act as first resistance, while the 100-day moving average is trading at 1.3937. Above that, we believe the 1.4000/10 zone will be the next significant objective ahead of 1.4085.”/n
