Sterling retreating after doubts for rate hike in May

The pound retreated yesterday after BoE governor Mark Carney shed doubts about a much anticipated rate hike in May. Carney’s comment that there are also “other meetings” this year, completed the puzzle of unfavorable UK financial data releases over the past three days relating to inflation, employment and retail sales. The market reacted negatively to the comments and cable dropped by some 100 pips. Please be advised that GBP OIS currently imply a probability of 67.11%, for a 25 basis points rate hike on the 10th of May by BoE. On other news, the EU seems to be rejecting a possible UK solution to the Irish border issue and the UK government auditor predicted that the Brexit bill could be exceeded by some 35-39 Billion pounds, both deepening political uncertainty. It could be the case that the Irish border issue is strengthening the arguments for the UK to remain in the EU customs union after Brexit, especially after the recent House of Lords defeat for Theresa May recently. Should there be further negative headlines about the BoE May rate hike or Brexit we could see the pound weakening even further.

Cable dropped considerably yesterday breaking consecutively the 1.4168 and the 1.4095 support levels. We see the case for the pair to continue to trade in a rather bearish market albeit in a slower pace, especially should it break clearly the upward trend line incepted since the 13th of November and as fundamentals seem to favor the bears currently. Should the bears continue to have the upper hand on the market we could see the pair reaching or even breaking the 1.3980 support line. Should the bulls take the reins we could see the pair breaking the 1.4095 resistance line and aim for the 1.4168 resistance hurdle.