The battered pound was thrown a temporary lifeline on Tuesday, after hawkish remarks from MPC committee member Gertjan Vlieghe slightly stimulated UK rate hike expectations.
Vleighe stated during his parliamentary reappointment hearing that interest rates could rise up to six times over the next 36 months. Sterling jumped to an intraday high of 1.3491 following the statement, before later surrendering gains as investors turned to BoE Governor Mark Carney for further guidance. It was interesting how Vlieghe was in favour of the BoE publishing a dot plot on future rate hikes, however, Deputy Governor Dave Ramsden and policymaker Michael Saunders were both “more skeptical” about rate forecasts.
During his testimony to the Treasury Committee, BOE Governor Mark Carney explained that there were “temporary, idiosyncratic factors” that impacted growth in the first quarter of 2018”. Although he also stated that “interest rates are more likely to go up than not”, but at “a gentle pace”, the Pound’s price action suggests that investors remain unconvinced.
Taking a look at the technical picture, the GBP/USD is under pressure on the daily charts. Sterling has scope to extend losses if soft domestic economic data and easing inflationary pressures in the UK delay monetary policy normalization. A technical breakdown below the 1.3400 support level could encourage a decline towards 1.3320.
Emerging market currencies fight back
Most emerging market currencies are powering higher today, following the lead of increased risk sentiment as a result of the weekend developments that there could be a breakthrough between China and the United States over trade negotiations.
EM currencies may be poised to recover further amid the positive sentiment, but whether this recovery has legs to continue will likely depend on whether investors take profit on the USD. The global currency markets continue to be dictated by the resurgence of the Greenback, and its direction will still provide guidance for other currencies, as there are not any current indications of a new catalyst coming into play.
Commodity spotlight – Gold
Gold popped higher on Tuesday with prices hitting $1295 as the Dollar retreated from five-month highs. However, gains on the yellow metal remained limited by the improving risk appetite across financial markets. With easing tensions in the US - China trade negotiations supporting risk sentiment and Dollar strength currently a major market theme, Gold could be doomed to tumble further. The fact that the yellow metal has already secured a solid weekly close below the $1300 support level confirms that bears remain in control. Taking a look at the technical picture, Gold has scope to extend losses if bears can break below the $1280 level. Previous support around $1300 could transform into a dynamic resistance that invites a decline towards $1280 and potentially lower.