Pound falls as BoE Hawk talks up rate cuts

Summary:

Renowned BoE Hawk Saunders hints at rate cut
Pound set for weekly loss
GBPUSD dips below $1.23 to trade near 3-week low

It’s shaping up to be a bad week for the pound with the currency falling across the board and dropping to its lowest level in almost 3 weeks against the US dollar as the rate dips back below the $1.23 handle. The return of parliament has perhaps caused a little more caution in the markets as investors are starting to feel that the bounce in the pound that we’ve seen in the past month is based on an overly optimistic assessment of the current risks.

The pound is trading lower on the week with the largest loss seen against the Kiwi and the Loonie. Source: xStation

The latest declines come after Michael Saunders stated the Bank of England may lower interest rates due to Brexit uncertainty. Selected comments are as follows:

Rates could go either way after Brexit
Brexit uncertainties are a slow puncture for the UK economy
Deferring monetary policy changes until after Brexit could lead to inappropriate policy
BoE's next move could 'quite plausibly' be a cut even if no-deal Brexit is avoided

Quite why this is moving the markets is unknown to be honest with the biggest surprise being that this is seen as a surprise at all. Economic data has been poor on the whole and while it looks like a technical recession will be avoided with a rebound to GDP growth probable in the 3rd quarter, the levels of activity seen in other metrics such as retail sales and PMIs suggest that the economy is still barely keeping its head above water. Throw in the almost universally acknowledged continued levels of heightened uncertainty on the political front, with markedly divergent Brexit paths still possible and it is actually pretty shocking that a comment that a rate cut is “quite plausible” has caused such a response.

The GBPUSD rate is on track for a 3rd consecutive day of losses with price pulling back into the Ichimoku cloud on D1. The low of the cloud around 1.2230 roughly coincides with prior support and could be a level to keep an eye on if price falls further. Source: xStation

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