Cable FOMC Conundrum

October 9, 2015

Bank of England:
The British Pound was the big story overnight, experiencing a wild 100 pip V shaped swing as Cable first fell on the Bank of England decision and then gained it all back as the FOMC minutes came into play.

GBP/USD 5 Minute:
Click on chart to see a larger view.

The Bank of England held UK interest rates at a record low level of 0.5%, with the bank’s Monetary Policy Committee voting 1-0-8 (increase-decrease-hold) in favour of keeping rates unchanged for another month.

Along with the now standard risk of turmoil in emerging markets, the BoE focused its attention on cost pressures in the UK labour market not rising at the rate required for inflation to return to the bank’s 2% target. This means that UK inflation levels would likely stay below 1% until the spring of 2016 which is longer than expected, and therefore pushed down the Pound as rate hike bets were redrawn.

Rate hikes are still on the cards for early next year but the Fed pushing things back has muddied the waters slightly, with some now predicting that the BoE move will be delayed too.

GBP/USD Daily:
Click on chart to see a larger view.

FOMC Minutes:
The September meeting FOMC minutes were also released overnight, showing that the committee was unsettled by signs of a global economic slowdown but still upbeat on the domestic economic outlook, stating that they thought things hadn’t “materially altered” the outlook for the economy.

“Nevertheless, in part because of the risks to the outlook for economic activity and inflation, the committee decided that it was prudent to wait for additional information.”

Just be aware that for markets, this is all old news. A lot has changed even in the short time since the FOMC meeting, most notably the September NFP Miss which showed far fewer jobs were created during the month than had been anticipated.

My favourite narrative around all this liftoff chatter is how the Fed likes to talk about keeping credibility. They most recently have stated that a premature rate rise would negatively affect their credibility but in reality they’ve put themselves in a lose/lose situation. Contradicting Fed speakers who chop and change dovish to hawkish from week to week and not following through on the stated plan at the first sign of a speed bump is what hurts credibility.

Greece MKII.


On the Calendar Friday:
AUD Home Loans m/m

CAD Employment Change
CAD Unemployment Rate


Chart of the Day:
We’ve looked at the EUR/GBP Channel in a technical analysis post a few weeks ago and we re-visit the pair in today’s chart of the day.

EUR/GBP Daily:
Click on chart to see a larger view.

As you can see, the setup from weeks ago is still basically in tact. We are still at the top of the daily range and the path of least resistance still looks to the downside.

Pound strength in the fallout after the most recent BoE guidance should dictate the trade from here.

iwatch banner

Do you see opportunity trading the British Pound? Trade with Vantage FX and win an Apple iWatch!

Dane Williams – @VantageFX

Risk Disclosure: In addition to the website disclaimer below, the material on this page prepared by Vantage FX Pty Ltd, does not contain a record of our prices, or an offer of, or solicitation for, a transaction in any financial instrument. The research contained in this report should not be construed as a solicitation to trade Forex. All opinions, news, research, Forex analysis, prices or other information is provided as general market commentary and marketing communication – not as investment advice. Consequently any person opening a Forex trading account and acting on it does so entirely at their own risk. The experts writers express their personal opinions and will not assume any responsibility whatsoever for the actions of the reader. We always aim for maximum accuracy and timeliness and Vantage FX shall not be liable for any loss or damage, consequential or otherwise, which may arise from the use or reliance on the service and its content, inaccurate information or typos. No representation is being made that any results discussed within the report will be achieved, and past performance is not indicative of future performance.


Free Daily Market Update

Live Spreads



Sign up to the latest forex news and daily FX trading setups

Get started with a FREE $50,000 demo account