GBP/USD Update: BoE’s Bailey Lifted US Bond Yields

UK inflation is projected to begin its downward slide soon, starting with April’s number – released May 24 – according to BoE Governor Andrew Bailey. Energy costs have begun dropping out of annual calculations, and food inflation should start receding, although timing remains uncertain. While optimistic on its path of inflation reduction, BoE Governor Bailey remains fully committed to meeting their 2% inflation target and won’t hesitate in raising interest rates further if necessary, Governor Bailey noted.

On a positive note he said “inflation will fall sharply”. On a more optimistic note he added that “inflation will fall sharply” over coming years, starting with April number that comes out May 24.

Though circumstances remain grim, things are looking brighter now than they did a couple of months ago. At the time we released our November Monetary Policy Report (MPR) last year, the Monetary Policy Committee expected a shallow but long recession in the UK economy; instead we are forecasting modest but positive growth with reduced unemployment increases and unemployment decline.’

Reducing inflation to its target level – BoE Governor Andrew Bailey

Cable (GBP/USD) has experienced significant downward momentum lately as rising US Treasury yields provide support for the US Dollar. Yesterday, two-year yields hit an all-time high of 4.12% following various Federal members’ hawkish views on monetary policy; today it trades with an yield of 4.088% and predictions that rates may reduce through 2018 are being scaled back, thus reflecting Federal Reserve expectations that rates may stay static or increase slightly through this year.

GBP/USD Current Levels:

GBP/USD currently trades at its previous short-term support level at 1.2447 and receives additional backing from its 50-day moving average at just below 1.2391, where recent lows down to 1.2350 can be seen. Initial resistance can be found at 1.2447 before 1.2515 (20dma), 1.2667, and 1.2680 become visible as targets. Source: Dailyfx


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