Safe-Haven Dollar Extends Gains
BoE Uncertainty and Gas Prices Push Pound Lower
by Bogdan Giulvezan
On Monday the Pound hit a one-month low against the greenback, weighted by rising gas prices in the UK, as well as uncertainty regarding the Bank of England’s monetary policy which will be revealed this Thursday. On the other hand, the dollar’s safe-haven status allowed it to gain ground against risk currencies, as an Asian sell-off created ripples that affected the STOXX 600 and London’s FTSE 100.
In the UK, wholesale gas prices soared to a point that prompted big suppliers to ask for state-backed loans and the government to consider this possibility. The aid would allow the remaining energy firms to service the customers of companies that have already gone bankrupt.
The Fed will meet this week and traders will be mainly focused on possible clues regarding the tapering of the asset purchase programme but the consensus is that we will not get clear guidelines for at least another month.
Key Events for the Week Ahead
Wednesday at 6:00 pm GMT the Fed will release the FOMC Economic Projections, the FOMC Statement and half an hour later, Fed Chair Powell will hold a press conference. The Statement contains the outcome of the interest rate votes but of course, no change is expected; however, the commentary about the economic conditions that influenced the votes will probably shine more light on the timeline for the tapering.
Early Thursday, at 7:30 am GMT the German Manufacturing and Services PMIs come out, showing the state of the two sectors according to the opinions of purchasing managers. The surveys usually have a medium impact on the Euro, with higher numbers strengthening the single currency.
A few hours later, at 11:00 am GMT, the Bank of England will announce the Monetary Policy Summary, which contains the result of the interest rate votes but will also show if some of the Monetary Policy Committee members consider that asset purchase tapering should start. If this is the case, the Pound may experience gains.
Technical Outlook – GBP/USD
At the time of writing, the Pound is trading at 1.3680 against the US Dollar and it looks like the bears will soon manage to break the support at 1.3700. Although price is currently below the level, a Daily candle has not closed, so we cannot deem this a true break just yet.
The Relative Strength Index is bearish without being oversold, the pair is trading below the 50 days Moving Average and the fundamental scene favors the US Dollar, and thus chances are that we will see a break of 1.3700. However, a move through the mentioned support and through the trend line that sits just below the current price would be more impressive and could possibly mark the beginning of an extended period of bearish movement. The two central bank meetings mentioned earlier will play an important role and will probably decide the outcome of this scenario.
