BoE Inaction Would Support The Sterling

Includes: GBB
by: FXstreet

The late reluctance of GBP/USD to penetrate psychological support at 1.6000, despite the late awakening of risk aversion, would find support in today's BoE gathering.

… End of stimulus in the UK?

The FX community agrees that the central bank commanded by Mervin King would leave both the refi rate and the Asset Purchase Programme, at 0.5% and £375 billion respectively, unchanged. However, it is also expected that the central bank would start to look for ways to slow down the ongoing easing cycle, in light of the creeping recovery in the British economy, sparked after the reading out of the Q3 GDP and highly influenced by the Olympics. Although market participants are not that cheerful when it comes to forecast Q4's economic activity, the truth is the last results in the UK fundamentals would prove the BoE is right.

In addition, and supporting the BoE prospects, the Funding for Lending Scheme (NYSE:FLS) triggered in July is proving to be effective to boost both the demand and supply for credit, while the inflation figures are posed to remain above the BoE's target, making an occasional decision of increasing the actual programme of stimulus highly unlikely.

When comes to technical, analyst Karen Jones at Commerzbank argues "Rallies are expected to find interim resistance at 1.6135/80 and while capped here an immediate downside bias will persist". The expert also suggests the market could have found tops last week in the vicinity of 1.6400

The in-house Bullish Percentage Index ((BPI)) is showing at the moment that 20% of pound-based pairs are still on bullish mode, according to point and figure patterns.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.