GBP/USD Daily Forecast – Sterling Falls as Carney Mentions Easing

Bank of England One Step Closer to Easing

Bank of England Governor Carney said in a speech today that policymakers are ready to respond if weakness in the economy persists. This prompted a sell-off in GBP/USD which was already weighed by a stronger dollar.

Carney added that economic growth in the UK has slowed below potential and that there is a debate at the MPC over the merits of near-term stimulus to provide support.

Discussions of monetary policy easing among policymakers in the UK is not all that surprising considering two members voted for a rate cut at both the November and December BoE meetings.

Adding to the downside pressure in GBP/USD is dollar strength as the US dollar index (DXY) has broken higher from a range. DXY had traded within a range since the last week of December but broke higher from it on Wednesday. The index is seen extending gains in early trading today.

Support for GBP/USD at 1.3000 is within sight and stands to limit the decline in the near-term. However, if the BoE continues down the path of easing, a downside break in the exchange rate appears inevitable.

In addition to UK monetary policy considerations, traders will look to Friday’s US jobs report to see how the American economy is progressing. Analysts are expecting the unemployment rate to remain unchanged at 3.5% and a job’s gain of 162 thousand people.

Technical Analysis

GBP/USD hinted of a turn lower yesterday after it broke below a rising trendline that originates from a low printed on January 3rd. The pair also declined below the 200 moving average on an hourly chart which had held it higher since the 3rd as well.

Today’s decline has driven the pair below 1.3050 support to print a sequence of lower lows and lower highs from the post-election peak. This tends to add to the case for further weakness in the pair.

Broken support at 1.3050 is seen as resistance for the session ahead. Slightly above it, further resistance is found at 1.3072. To the downside, major support for the pair is seen at 1.2989, slightly below the 1.3000 handle.

Bottom Line

• Carney has opened the door to easing, triggering a decline in Sterling.
• The dollar index broke higher from a nearly two-week range on Wednesday, putting further pressure on GBP/USD.
• Support at 1.3000 is within sight.