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Dovish Comments from Bank of England Sink GBP/USD

By:
James Hyerczyk
Updated: Nov 5, 2015, 15:39 UTC

The GBP/USD broke on Thursday after the Bank of England dampened expectations of an interest rate hike in February or March of 2016. The central bank left

Dovish Comments from Bank of England Sink GBP/USD

UK
The GBP/USD broke on Thursday after the Bank of England dampened expectations of an interest rate hike in February or March of 2016. The central bank left its benchmark interest rate at 0.50% while issuing a dovish statement that suggested interest rates weren’t likely to move higher until late 2016.

The BoE also predicted near-zero inflation would pick up only slowly even if borrowing costs stay on hold throughout 2016. The central bank’s minutes showed only one Monetary Policy Committee member, Ian McCafferty, voted to raise rates this month, while the other eight members voted to continue to leave interest rates at a historical low.

The dovish comments from the BoE coupled with a stronger-than-expected U.S. Non-Farm Payrolls report on Friday could trigger an even further break on Friday.

Short-covering and position-squaring ahead of the U.S. jobs report helped underpin the EUR/USD on Thursday. The Euro has been weakening against the U.S. Dollar due to the increased possibility of an interest rate hike by the Fed in December and on expectations of further stimulus by the European Central Bank. Earlier in the week, ECB President Mario Draghi reiterated that a decision whether more stimulus was needed or not would be taken at its next meeting on December 3.

December Comex Gold prices held near a 1-month low on Thursday, driven lower by the stronger U.S. Dollar. The dollar is up because of increasing odds of a rate hike by the Fed before the end of the year.

Gold has been under pressure since the Fed issued a hawkish monetary policy statement on October 28. The statement strongly suggested that a December rate hike is likely. Prior to the statement, investors had placed the odds of a rate hike by the end of the year at 30%. After the statement, the odds increased to 50%.

Yesterday, Fed Chair Janet Yellen said the U.S. was ready for higher interest rates and that stronger labor and inflation data would make a December hike a strong possibility. The New York Fed’s William Dudley reiterated Yellen’s comments by saying that December “is a live possibility, but we’ll see what the data shows”. After Yellen made her comments, the odds of an early rate hike jumped to 60%.

December Crude Oil futures resumed the sell-off that began on Wednesday with the release of the weekly inventories report from the U.S. Energy Information Administration. According to the EIA, U.S. crude inventories added 2.85 million barrels the week-ended October 30. This was in line with expectations. Traders for the most part chose to ignore the strike news from Brazil and the shutting down of pipelines in the U.S. and Libya that had underpinned the market earlier in the week.

Imports fell to their lowest level since 1991, but this didn’t seem to impress traders enough to stop the selling pressure. According to Reuters, an internal document from OPEC showed weaker demand in the next few years for oil. 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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