Sterling Takes Off After BOE Holding Rates, Can It Survive Friday’s NFP?

British Pound rallied to four-week highs versus the U.S dollar on Thursday, powered by both economic and political factors. The Bank of England (BOE) decided to hold its rates unchanged after a court ruling that the government must hold a vote in Parliament before triggering the Brexit process. Earlier on the day, the U.K’s Services PMI was reported to hit the highest level since January 2016.

The pair GBPUSD hit its peak since October 07th at 1.24940 after the Bank of England kept interest rate intact. In a statement following the rate decision, the BOE Governor Mark Carney stated that the Monetary Policy Committee “have a neutral bias around policy going forward.” It means that the U.K’s central bank not only did not have the intention to cut rates further this year, but it was also considering tightening its monetary policy in the near term.

Carney almost wiped out market’s expectation that the bank will cut the key rate to a new record low by stating on Thursday that “Monetary policy can respond in either direction to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the target,”.

Sterling, which slumped strongly in the aftermath of Britain’s decision to leave the European Union, has played an important role in pushing up inflation. However, according to the MPC, the current rally in prices may be too strong to support growth. Therefore, a rate hike may be needed if faster-than-expected price gains cause adverse effect to the economy.

Another factor that gave a boost to the Cable today is the decision by a U.K. high court that forces the government to hold a vote in Parliament before triggering the Article 50 to start the two-year countdown to the nation’s exit from the European Union. The participation of Parliament whose members were overwhelmingly pro-EU before the June 23 referendum, may delay Prime Minister Theresa May’s plan to kick off the Brexit negotiations beyond March 2017 – her initial schedule.

In the U.S., the race to the White House has become unpredictable since the FBI reopened its investigation into Clinton’s use of private email while she was Secretary of State. The U.S dollar was weakened after some polls indicated the resurgence of Republican Donald Trump. However, the greenback has regained steam following fresh polls showing Hillary Clinton leading Donald Trump in the presidential race, although the gap is just a few percent points.

Investors are waiting for tomorrow’s monthly payrolls report, which is forecast by economist to show an increase of 174,000 new jobs in October. Upbeat data will strengthen the case for the Fed to raise rate next month.  In a statement on Wednesday after the central bank opted to leave rates unchanged, the FOMC said it only needed “some” further evidence that inflation and employment were on track toward their goals to hike.

gbpusd

Fig: GBPUSD H4 technical chart

GBPUSD has broken its trading range from 1.20880 to 1.23300, within which the pair was locked for nearly a month. Sterling rallied sharply but failed to sustain the bullish momentum beyond the 1.24700 level. The pair had to reverse low against this handle also because the market has stepped in the overbought zone. Some corrective moves are expected.

Trade suggestion

Sell Stop at 1.24200, Take profit at 1.23300, Stop loss at 1.24800

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