Cable has given back more than a cent of its gains as midday approaches in the US. The pair rallied to beat the band earlier in the day despite frightening forecasts for the UK economy this year. Short-covering has been the main culprit this week, but in the process, the charts improved, prompting technical traders to jump on board the bandwagon. Stops above 1.4500 and 1.4550 were triggered late in London trade and it now looks like the pound will have to sleep off that buying binge for the next few hours, at least. 1.4350 is solid support on dips.
Dealers are becoming a bit cautious ahead of tomorrow’s BOE meeting, where a 50 bp cut is expected. The Bank has shown a willingness to be a bit more adventurous in providing accommodation than the Teutonic ECB. That’s the wild card: a larger cut, or a move to unconventional policy, like buying more bonds, a form of credit ease. On the other hand, NIESR says a rate cut at this juncture is pointless.
