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Sterling Stumbles On Dovish BOE Comments - Selling Favored On GBPUSD - Capital Street FX

16:00 IST

GBPUSD continued to fall for a second day today, on warnings that an interest rate cut could be delivered in the summer of 2016 by the BOE.

On Wednesday, GfK’s survey of about 2,000 consumers showed that the Consumer Confidence Index remained unchanged in June at -1, compared with the data in May. Yet, the measure of how consumers view the future 12-month economic outlook slipped to minus 14, down 18 points from a year earlier. A data below 0 indicates pessimism, indicating Britons’ generally gloomy views on the U.K economy after the 23 June referendum.

Even more importantly, Britain’s economic growth slowed in the first quarter as business investment faltered. According to the data from Office for National Statistics published on Thursday (30/6), business investment in the first quarter fell by a seasonally adjusted 0.6%, worse than the estimates of a 0.4% decline. This followed a slump of 2.0% in the previous quarter. The final estimate for the Gross domestic product (GDP) for the period between January and March rose by 0.4%.

Yesterday, Bank of England governor Mark Carney dragged down the sterling further by noting in a speech that the bank would cut its key interest rate, which currently stands at a record low of 0.5%, over the summer. The possibility of lower interest rates has cast a shadow on the currency by driving away investors seeking yield. Consequently, after a two-day recovery, the pound continues the overall downtrend against the U.S dollar.

In the U.S, the greenback suffered small losses on mixed data. On Thursday (30/6), the Labor Department reported that weekly U.S Unemployment Claims ticked up by 10,000 to a seasonally adjusted 268,000 in the week ending on June 25. This represents an increase from analysts’ expectation of 267,000. Additionally, employers added just 38,000 jobs last month, the fewest in more than five years. The Chicago Purchasing Managers’ Index (PMI) registered at 56.8, beating economists’ estimates of 50.6, indicating some bright spots in the economy.

The dollar index .DXY, which measures the greenback’s strength against a trade-weighted basket of six major currencies, plummeted 0.05% to 95.91 from the previous close.

gu d1

Fig. GBPUSD D1 Technical Chart

On the daily chart, the moving average is putting pressure over prices, indicating that the bearish trend is overwhelming. The trend indicator also encourages a short position as the red arrow appeared above price since June 10, 2016. Nevertheless, according to the stochastic chart, the %K line (blue line) has crossed the %D line (red line) successfully, and so the price is anticipated to climb in short term as a corrective bounce, before dropping again.

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