The Bank of England’s hawkish statement last night sent sterling to its highest level against the greenback in nearly a year.

GBP/USD jumped 1.4% overnight to the 1.338 area, after the central bank sent a strong signal that the policymakers are preparing to tighten the monetary policy in the months to come, while maintaining the interest rate unchanged in this meeting.

‘Withdrawal of monetary stimulus is likely to be appropriate over the coming month’, the central bank said. This would put the BoE in line with another two systematically significant central banks – the Federal Reserve and European Central Bank – in respect to their future policy direction. The era of ultra-loose monetary policy is about to end, and interest rates will gradually be normalised across different regions. 

The US inflation rate rebounded strongly in the month of August, driven by higher housing and petrol prices. The CPI reading rose by 0.4% month-on-month, beating the market’s consensus of a 0.3% rise. On a year-on-year basis, the price level rose by 1.9%. A strong inflation reading will clear some doubt over the Federal Reserve’s next interest rate move toward the end of the year. 

On the other hand, the economic damage brought by Hurricanes Harvey and Irma will likely become a drag on interest rate hikes. The likelihood of a December rate hike, according to the CME’s FedWatch tool, has risen from 41% to 50% in a day.

North Korea fired another missile over Japan this morning, spurring a renewed wave of concerns about geopolitical tensions over North Asia and the States. Precious metal prices got a boost whereas Asian equities opened broadly lower this morning. Cautious sentiment will probably dominate trading for the rest of the day. 

Technical Analysis:

GBP/EUR

  • 10-Day Simple Moving Average sloped upwards
  • SuperTrend (10,2) remains in a bullish set-up, suggesting a strong uptrend 
  • Challenging the 38.2% Fibonacci retracement level at the 1.124 area. Breaking out above this level will open room for further upside toward the next resistance level at 1.138
  • Momentum indicator RSI has reached the overbought zone above 70%


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