FX News – August 7: Forward Guidance Talks Weaken GBP

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Today's biggest fx news is without a doubt the Quarterly Inflation Report by Bank of England Governor Mark Carney. He is expected to discuss in detail his plan for 'forward guidance' later at 9:30AM GMT.

Mr Carney is a former Governor of the Bank of Canada and is the BoE’s first foreign governor. In his previous post, he also introduced forward guidance wherein the BoC did not increase rates for least a year. This helped Canada's economy recover faster than expected.

There are analysts who say that such a move by the governor will have little effect on the UK's economy. Others, however, say that it would depend on the milestone the BoE chooses for its policy. In the case of the BoC, Mr Carney promised not to raise rates for at least a year, as previously mentioned. In the case of the UK, there are analysts who expect the governor to tie it with the unemployment rate. It means that if the economy reaches its unemployment target, the BoE would then stop its forward guidance policy. We shall discuss this further in a separate article.

Talks of forward guidance have so far dragged down the sterling against most currencies in today's trading. Against the greenback, for example, the GBP/USD pair went on a steady slide after peaking at 1.5350 in today's trading. The pair is currently at the 1.5305 level.

Initial resistance for the pair is at 1.5371, followed by 1.5410. Meanwhile, initial support is at 1.5311, followed by 1.5272.

The sterling has also struggled against the euro today, which helped the GBP/EUR bounce back to the 0.8680 level. Just yesterday, the pair fell to a low of 0.8617 before rising steadily until today's trading.

The pair is currently trading at 0.8677, with initial resistance at 0.8700, followed by 0.8722. Meanwhile, initial support is at 0.8644, followed by 0.8622.

By FX Strategy Team, Published on 7th of August 2013
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