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BoE delivered mixed economic projections

BoE left key interest rate unchanged at 0.25% with 7-1 vote. Kristin Forbes remained the only one voting for a hike. Meanwhile, Charlotte Hogg did not participate. Asset purchase target was held at GBP 435b by 8-0 vote. In the quarterly Inflation Report, UK growth is projected to be at 1.9% in 2017, revised down from prior 2.0%. Growth projections for 2018 and 2019 were revised up, to 1.7% and 1.8% respectively, from 1.6% and 1.7%.


For inflation, BoE raised 2017 CPI projections to 2.7%, up from prior 2.4%. However, for 2018 and 2019, inflation is projected to be 2.6% and 2.2%, down from prior 2.8% and 2.5%. It also noted that "through its effects on costs, the fall in sterling is likely to keep inflation above the 2% target throughout the next three years."


The central bank also noted that "if the economy follows a path broadly consistent with the May central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the very gently rising path implied by the market yield curve underlying the May projections." However, BoE also emphasize that "this is conditioned on the assumptions that the adjustment to the United Kingdom's new relationship with the European Union is smooth, and that Bank Rate follows the market-implied path for interest rates."


Released from UK, industrial production dropped -0.5% mom, rose 1.4% yoy in March. Manufacturing production dropped -0.5% mom, rose 2.3% yoy in March. Construction output dropped -0.7% mom in March. Visible trade deficit widened to GBP -13.4b in March. RISC house price balance was unchanged at 22 in April.


GBP/USD Daily Outlook 


GBP/USD drops sharply yesterday but stays above 1.2830 minor support so far. Intraday bias is neutral first. Another rise cannot be ruled out, but upside momentum is clearly weak with bearish divergence condition in 4 hour MACD. Also, current rally is seen as part of the corrective pattern from 1.1946. Hence, even in case of another rally, we'll look for reverse signal above 1.2987. Meanwhile, break of 1.2830 support will indicate short term topping. In such case, intraday bias will be turned back to the downside for 1.2614 support.


In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term reversal yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

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