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Pound falls after BoE decision

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By Lukman Otunuga, Senior Research Analyst at FXTM

Investors who were expecting more hawks to join the policy discussion were left empty-handed at the Bank of England meeting on Thursday.

Policymakers voted unanimously to keep interest rates unchanged at their current record low of 0.1% and a majority voted to maintain asset purchases at the current level of £895 bln.

Andy Haldane was the only dissenter who was looking at tapering bond purchases, but he departs from the bank at the end of June.

Despite officials revising up their growth forecast for this quarter, the overall tone of the meeting sounded cautious with the central bank in no rush to raise interest rates.

Economic growth in Q2 was revised up by around 1.5% since the May report, but output in June is expected to be around 2.5% below its pre-Covid 2019 fourth-quarter level. Inflation is expected to exceed 3% in the months ahead but the BoE sees it as “transitory” and should not affect monetary policy.

The MPC may not want to run the risk of acting too soon, especially after the committee also continued to emphasise that it should “lean strongly against downside risks” to the economic outlook.

Indeed, the renewed rise in Covid-19 cases, uncertainty surrounding the Delta plus variant and the delay to ending lockdown restrictions remain on the central bank’s list of concerns.

Pound bulls were disappointed by the BoE and this was reflected across the G10 space. Sterling has weakened against every major currency, falling as much as 0.5% against the Euro and 0.7% against the Swedish Krona.

Regarding GBPUSD, the currency remains under pressure on the daily charts with resistance at 1.40.

A solid daily close below 1.39, which is under the 100-day Simple Moving Average, could signal a decline towards the weekly lows of around 1.3786. Alternatively, a strong move above 1.40 could open the doors towards 1.4080 and 1.4133, respectively.

 

Dollar slips as jobless claims barely fall

The dollar slipped on Thursday afternoon after the US Labour Department reported that jobless claims fell 411,000 last week compared to market expectations of 380,000. This was effectively unchanged from the prior week’s 412,000 claims.

Given how the Federal Reserve has made it clear to markets that employment is a key component in its mandate, the disappointing jobless claims could add to the noise and mixed signals from Federal Reserve officials on the timing of tightening monetary policy.

 

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