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Forex - GBP/USD bounces back on BoE policy split

ForexJun 15, 2017 12:27
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© Reuters. Pound erases losses vs. greenback after BoE policy decision - The pound bounced back against the U.S. dollar on Thursday, erasing earlier losses as members of the Bank of England appeared divided on the direction of interest rates, fueling expectations for an upcoming hike.

GBP/USD bounced off 1.2691, the pair’s lowest since Tuesday, to hit 1.2781 during European afternoon trade, up 0.28%.

Cable was likely to find support at 1.2639, Tuesday’s low and resistance at 1.2890, the high of May 30.

The pound strengthened after the BoE chose to keep interest rates unchanged at a record low and maintain the level of its asset purchase program, in line with expectations, but members of the Monetary Policy Committee surprised markets with three dissents.

Five MPC members voted in favor of holding rates, while three opted for a hike. Markets had expected a vote of 7 to 1.

The decision came after the U.K. Office for National Statistics reported that retail sales fell 1.2% in May, compared to expectations for a 0.8% fall and after a revised 2.5% increase the previous month.

Year-on-year, retail sales increased by 0.9% last month, compared to forecasts for a 1.7% rise.

Core retail sales, which exclude automobiles and fuel, decreased by 1.6% in May, compared to forecasts for a 0.8% slide.

Political uncertainty was also lingering the U.K. as Prime Minister Theresa May faces calls to soften her stance on Brexit days before negotiations on leaving the EU begin.

On the other hand, the greenback was also supported after the Federal Reserve raised interest rates from 1.00% to 1.25%, in a widely expected move on Wednesday. However, disappointing U.S. inflation data released the same day raised questions about whether the central bank will be able to hike rates again later this year.

Political turmoil also continues to plague on investors’ minds, the most recent development being a Washington Post report on Wednesday announcing that U.S. President Donald Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice.

Sterling was also higher against the euro, with EUR/GBP dropping 0.86% to 0.8725.

Forex - GBP/USD bounces back on BoE policy split

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