Sterling pared some of the post-GDP losses today after BoE minutes revealed that an additional member voted for a rate hike in January. Andrew Sentance called for gradual removal of policy accommodations since last June. This time, Sentance was joined by Martin Weale and both considered that the continued elevated rate of inflation, which was forecast to persist, posed a significant risk to inflation expectations and hence to the medium term outlook for inflation.
Meanwhile, for some of the other seven members who voted to leave rates unchanged, the decisive was finely balanced. Nevertheless, some members feared that a rate hike in January would case expectations of a relatively sharp tightening of monetary policy and have a detrimental impact on confidence and activity. Meanwhile, Adam Posen once again voted for expanding the asset purchase program by another GBP 50b.
Dollar remains soft against euro but stays in range against other major currencies ahead of FOMC rate decision. At today's FOMC meeting, policymakers will very likely leave the Fed fund rate unchanged at 0-0.25% and maintain the asset-purchase program announced in November 2010 at $600B. While acknowledging improvements in recent economic outlook, the Fed's stance will remain cautious. In the accompanying statement, the central bank will reiterate that it 'anticipates a gradual return' to mandate-consistent levels of employment and inflation. More in Fed To Leave Monetary Policy Unchanged Despite Better Macroeconomic Data.
In his annual State of the Union address yesterday, US President Obama proposed a freeze on non-defense discretionary spending in order to save $400b from the budget over the 10 years. Meanwhile, Obama also endorsed additional cuts of %78 in defense budget. Obama emphasized again that the US government is spending more than it takes and and that is not sustainable.
Japan economy minster Kaoru Yosano said today that in case of undesirably volatile conditions in the fx markets, the Japanese government and BoJ must consider steps to avoid turbulence in the economy. Nevertheless Yosano also said that USD/JPY at current 82 level, is not moving that much and the market is deciding the rate. Such comment is taken as a hint that he's not advocating government of BoJ action.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.5705; (P) 1.5861; (R1) 1.5971; More.
GBP/USD's recovery from 1.5750 extends further today and at this point, intraday bias remains neutral. More consolidations could be seen above 1.5750 temporary low. But after all, another fall remains mildly in favor as long as 1.6057 resistance holds and below 1.5750 will target 1.5664 structure support. Break there will indicate that rebound from 1.5343 is completed and will bring deeper fall to retest this support. Also, note that decisive break of 1.5296/5343 support zone will complete a head and shoulder top reversal pattern (ls: 1.5997, h: 1.6298; rs: 1.6057) and will have bearish implications. Nevertheless, before that, rebound from 1.5343 might still continue and above 1.6057 will target a test on 1.6298 high.
In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidation to long term down trend from 2007 high of 2.1161. Rise from 1.4230 is treated as the third leg of such consolidation and with 1.5296 support intact, such rise could still continue for 1.7043 resistance. But after all, strong resistance should be seen between 1.7043 and 50% retracement of 2.1161 to 1.3503 at 1.7332 to limit upside. On the downside, break of 1.4230 support will be the first signal of down trend resumption and will turn focus to 1.3503 low for confirmation.
Economic Indicators Update
|23:50||JPY||Corporate Service Price Y/Y Dec||-1.30%||-1.30%||-1.10%|
|15:00||USD||New Home Sales Dec||300K||290K|
|15:30||USD||Crude Oil Inventories||0.9M||2.6M|
|19:15||USD||FOMC Rate Decision||0.25%||0.25%|
|20:00||NZD||RBNZ Rate Decision||3.00%||3.00%|