Pound Rises As BoE Hints At Rate Hike

Dear Traders,

What a trading day for Sterling traders! The pound jumped to 1.34 as the Bank of England hinted at a rate hike “in the coming months”. While the central bank’s Monetary Policy Committee voted 7-2 to keep interest rates on hold, it was talking in much stronger terms about tightening. The pound initially plunged to 1.3150 before jumping to fresh one-year highs. Sterling traders’ efforts paid off and we were able to gain a nice profit of more than 100 pips by trading our yesterday’s long entry.

BoE Governor Carney said that the majority of the MPC see that “the balancing act is beginning to shift” and that “some adjustment of interest rates may be needed in the coming months”. The market is now looking to the November meeting as a possible time for a BoE rate hike. The Bank of England meeting in November is a Super Thursday on which the central bank releases its inflation report, along with the economic outlook and its rate decision. However, there is some doubt about the BoE’s strong rhetoric: If MPC officials have deliberately taken a hawkish tone to support the market’s appetite for sterling in order to slow inflation it may be some time before they are going to raise rates.

We currently see GBP/USD trading around 1.34. Next hurdles will be at 1.3450 and 1.3480 before the focus shifts to a potential bullish breakout beyond 1.35. Looking at larger time frames, a break of the 1.35-level will be crucial for a long-term bullish trend.

The U.S. dollar in contrast benefitted from the U.S. CPI which fueled hopes for a Federal Reserve rate hike in December. Furthermore, the Trump reflation trade came back into focus, providing some relief for the greenback.

U.S. Retail Sales are due for release at 12:30 UTC but today’s report is not expected to help the USD strengthening.

EUR/USD: The support around 1.1830 is still unbroken but this could change in the near-term – provided that the euro remains below 1.1950. We now expect the pair to trade between 1.1950 and 1.18. Any breakouts above or below that range could accelerate the respective momentum.

We wish everyone a relaxing weekend.

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