The pound started off the day on a positive note, enjoying the deal between two beer conglomerates. The expected flow to SABMiller in the UK helped the pound, but this was short lived.
But things turned sour afterwards:
- Deflation: The UK reported a year over year decline in prices: 0.1%. This outright deflation level was worse than 0% expected and seen last month. A m/m drop of the same scale accompanied the publication. Also the RPI and Core CPI fell short, with the latter remaining at 1% y/y. It is now easier to see why the Bank of England preferred to see the glass half empty.
- New dove on board: Gertjan Vlieghe,  a new member of the BOE made a public appearance and he can be certainly be labelled as a dove, opening the door for rate cuts. While everything is data dependent according to the new kid in town, his comments lean to the dovish side. Te BOE has time to wait and see before raising rates and if necessary, cut rates or extend QE, even if QE is less effective.
- Worried hawk: Ian McCafferty, the only MPC member who supported a rate hike in the past three meetings, doesn’t seem so hawkish. What is his reasoning? He wants higher rates to cut them down soon enough. He sees great uncertainty and says that rate hikes will be rather slow. Growth in productivity is visible but remains depressed. And if needed, the BOE can cut rates as well.
Pound/dollar was already close to the round 1.54 level when it turned south. It is important to note that the move began before the actual release of inflation data, something that is not uncommon in the UK.
We then saw a “sell the rumor, sell the fact†reaction. And since then, it’s just all downhill. Cable completed a fall of over 150 pips peak to trough.
Tomorrow we have all important employment data. See how to trade the UK wages with GBPUSD
Further support awaits only at 1.5160. Here is the chart:
