Traders were focused on the British Pound yesterday and for a good reason as the UK currency was expected to be very active on the back of a number of combined reasons and developments. And indeed the Pound didn’t disappoint the expectations for a strong price action but it did disappoint traders that were backing it to perform well and look for higher levels.
After the Monetary Policy Committee had their meeting the release of the meeting’s minutes, the Quarterly Inflation report and Governor Carney’s comments over the press conference that followed damaged the Pound and its future outlook. There was only 1 member of the MPC that voted in favor of raising rates compared to the 3 members that were expected to do so revealing that there is increased caution among the policymakers.
At the same time Carney’s remarks on the inflation target of this year and his expectations for a higher interest rate policy were on the bearish side even though the BoE Governor has been known to employ a more bullish approach. As such the Pound traded strongly lower against all of its peers with the Cable dropping to 1.5500 and spending the day trading just above this level. The outlook for the Cable has turned bearish at this point as we know turn out attention to the US jobs report. Further pressure from the US Dollar has the potential to drive the Cable towards the 1.5400 level initially with the view to go even lower towards the 1.5350 lows.
The Non-Farm Payrolls report is another piece of data that traders will want to closely monitor as the Fed has made clear that they will base their timing for raising their key interest rate on the performance of the labor market. Expectations are set for a strong release this month but for the Dollar to appreciate we need to see robust performance across all metrics, with the Average Hourly Earnings being an important one. If the report hits its targets then we should see an across the board Dollar rally as a September rate hike will be back on the table.
The Eurospent the day range trading either side of the 1.0900 level and it’s clear that traders are waiting on the US jobs report to dictate the price action before they commit. The sentiment remains bearish as we’ve have no fresh news from the Euro area to suggest a turn in momentum and it will all come down to the way the NFP report will print. A strong report should drive the Euro towards its previous lows of 1.0850 while a miss and a disappointing Dollar performance would allow a relief rally towards the 1.1000 barrier.