Pound turns bullish on BoE’s less dovish stance
When a currency is driven by political sentiment than fundamental data, then it becomes quite easy to spot the trend.
The possibility of a demand for second referendum by Nicola Ferguson Sturgeon, leader of the Scottish National Party, and EU’s tough stand against Britain made us forecast Pound’s decline against the Greenback, on March 2nd .
We had also recommended a short position in the GBP/USD pair near 1.2320, with a target of 1.2120, in the currency market. Simultaneously, we had suggested binary traders to invest in a put option. Both trades had finished in the money.
Now, the Pound has slightly recovered in the past four trading sessions. We forecast the GBP/USD pair, which is currently trading at 1.2380 levels, to rally further on the basis of arguments provided underneath.
During the monetary policy meeting held last week, the Bank of England decided to leave the interest rates unchanged at 0.25%, and maintain the prevailing level of asset purchases. The decision was in line with the market’s expectation. However, the statement accompanied by the BoE created a positive sentiment on the Pound. The BoE stated that if necessary it would consider a rate hike in the coming months. In fact, the nine member committee did not unanimously vote for keeping the interest rates steady. Kristin Forbes, a member of the committee, voted for a 25 basis point rate hike. Forbes call for a rate hike was based on the forecast that the inflation would be above the target levels for the next three years and this would pose a downside risk to the economy.
In the meanwhile, news emerged that Nicola Sturgeon has decided to postpone the call for a second Scottish referendum to the end of 2018. The decision was taken after taking into consideration the support of the Scottish people to stay with England, Wales and Northern Ireland. According to a survey conducted by YouGov, nearly 57% of Scots would vote in favour of staying with the UK, while only 43% would vote for independence. It is the highest known lead for the ‘yes’ vote, since 2014.
In the US, the Fed raised the interest rates, as expected, during the policy meeting held on Wednesday last week. The Fed also reconfirmed its plan of raising interest rates two more times this year. However, the US dollar hardly moved upwards due to the fact that the rate hike was already priced in. The market was also clearly disappointed to not hear about the possibility of three more hikes this year. Thus, market’s disappointment with the Fed’s decision and positive sentiment on the Pound is expected to keep the GBP/USD pair bullish in the short-term.
A look at the price chart reveals that the sellers had made several failed attempts to break below 1.2150. The rising MACD and accumulation/distribution indicator underlines the increasing momentum and support offered by investors. Thus, it can be interpreted that the pair would hit the next resistance level of 1.2540.
A currency trader can buy the Pound in exchange of the Greenback, near 1.2340. To trade in a disciplined manner, a stop loss order is advised below 1.2240. The profit can be booked near 1.2540.
By investing in a high or above contract, a binary option trader can gain from the GBP/USD pair’s rally. A date around March 28 th can be chosen as the expiry date, while the entry into the trade can be timed near 1.2340.
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