As I had expected, the Sterling slumped against Dollar as BoE decided to continue the Quantitative Easing program by expanding assets purchase program to 175b pounds. Following the report, the BoE said that â€œIn United Kingdom, the recession appears to have been deeper than previously thoughtâ€ For me, that’s almost like saying: â€œHey, the recession may have reach the bottom in US and Europe, but not in United Kingdomâ€.
Here is the main reason why continuing QE program is bad for Sterling: So far, the QE program has shown very little evidence to help the economy recovery, while printing money to buy assets could trigger hyperinflation. Given that pessimistic UK economy outlook, my fundamental focus now is on the US NFP report today. Here is the scenario: If the NFP show positive number, I am not sure what is the effect to the Sterling. It can be mixed because I doubt that risk appetite could be applied to the Sterling in this situation. But should the Sterling supported, the upside momentum should be very limited. On the other hand, if we have worse than expected number (note that according to ADP on Wednesday, NFP data showed a worse than expected number), it’s going to be very bad for the Sterling as risk aversion is likely to rise and the demand for Dollar as safe heaven currency should increases.
Technically speaking, the GBPUSD was traded significantly lower yesterday after breakdown from the range area, bottomed at 1.6750 and closed at 1.6774 indicating a bearish view in nearest term and potential threat to the current bullish medium term. The bias is bearish in nearest term and any consistent move below 1.6750 support area should trigger further bearish momentum back towards 1.6660 area. Immediate resistance is see at 1.6890 area (Tuesday’s low).