The GBP USD posted an inside move on Wednesday. A break through 1.5086will take out yesterday’s low and signal the start of a possibleretracement to 1.4874.
The news on Wednesday was not all that pleasant for the U.K. economy either as the Bank of England reported fresh signs that the anticipated economic recovery would be slow and drawn out.
In my opinion the most bearish announcement was the projection of below target inflation for the next three years. This news was the real cause of the weakness in the GBP USD as it indicated the BoE would have to step up its government asset buyback program.
If you recall, the buyback program is known as quantitative easing. QE is another way of saying “flood the economy with cash”. This action leads to a debasing of the currency. As long as investors feel the BoE will have to act aggressively, long-term gains in the Pound should be limited.
The market posted an inside move on Wednesday. A break through 1.5086 will take out yesterday’s low and signal the start of a possible retracement to 1.4874.