Pound erases gains after dovish BOE inflation report

Pound erases gains after dovish BOE inflation report

http://www.dreamstime.com/royalty-free-stock-photo-bank-england-london-image9420245The British pound pared its earlier gains versus the U.S. dollar after the BOE inflation report signaled a downside revision to growth forecasts and low inflation for longer period.

The GBPUSD retreated from the peak of 1.5742 to trade around 1.5665, following the release of the BOE inflation report and BOE Governor Mark Carney’s press conference.

The BOE now foresees a growth rate of 2.5 percent this year from 2.9 percent estimated in February. Growth expectations for 2016 and 2017 were also revised down to 2.6 percent and 2.4 percent from 2.9 percent and 2.7 percent.

As for inflation, the BOE predicts the rate may fall below the current 0 percent in the coming months, where it will not pick up again to the bank’s target of 2 percent before 2017.

Carney also warned of weak U.K. productivity, yet he has expects wages to rise 2.5 percent this year.

The current record-low interest rate of 0.5 percent will rise in about a year, until it reaches 1.4 percent in three years’ time.

On the upside, the bank revised down its unemployment projections to 5.2 percent this year, compared to prior estimates of 5.4 percent, where the rate will retreat further to 5.1 percent in 2016.

The pound reacted positively to the U.K. data showing unemployment fell to its lowest level in seven years and wage growth climbed above 2 percent.

However, the pound drifted lower after the inflation report that raised expectations interest rates will not be raised before a year, especially as the win of Conservatives in election meant the continuation with austerity to trim budget deficit.

For technical analysis and targets, please check GBPUSD: Right shoulder traced quickly?

Ahmed Mamdouh

Ahmed Mamdouh, Co-Founder and Head of English Fundamental Analysis at FXComment.com, with 7 years of experience in the financial markets. Mamdouh holds a Master’s Degree in Economics from The American University in Cairo and a Bachelor Degree in Economics from The Faculty of Economics and Political Science, Cairo University.

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