British Pound / US Dollar (GBP/USD) : Central Banks’ week
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08/01/2012 | 10:07am
Opinion : Bullish above 1.5563 USD
Target price : 1.5828 USD
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Two days before a probable status quo of the Bank of England (BoE), the Sterling remains strong because the institution in early July increased the program of asset purchases of, taking advantage of both the weakness of the dollar, threatened by QE3, and the reassuring leaders of the eurozone, the first trading partner for the United Kingdom.
While, according to last meeting minutes of the Bank of England, the majority spoke in favor of a new stimulus, last month the Monetary Policy Committee opted to inject 50 billion pounds additional on four months to support an economy in recession, bringing the total to 375 billion since March 2009. Even though the recent macroeconomic statistics, a fall in inflation from 2.8% to 2.4% yoy in June and a GPD growth of -0.7% for the second quarter, against -0.3% expected, confirm voter choice, investors do not expect the BoE to give a new boost before November.
Besides a stabilization of the money supply in Britain, the weakness of the dollar also argue for an appreciation of the pound while the U.S. economic situation tends to scare away investors and a new Fed quantitative easing program (the Federal Reserve will release its decision today) would dilute the value of the “Uncle Sam’s money”.
Thus only the ECB, whose chairman will speak again this week for the traditional press conference of the institution, could prevent a breakout of the trading range. While Mario Draghi does not clearly respond to the expectations of investors that he raised last week in London, the Euro could lead the British currency to a sudden fall.
Technically, the Sterling is trading in a range between 1.54 and 1.58 since early June. But it goes less and less down in the last weeks. Now, the currency seems able to test the upper bound in the short term or even in the medium-term to target 1.60. However, a breakdown of 1.5563 will invalidate this scenario temporarily and illustrate the revival craze of Forex traders for the dollar.
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