UK Interest Rate Increase is Near, BOE

Great Britain Pound (GBP) took a new direction after Bank of England (BOE) policy makers said China’s slowdown hasn’t shaken their conviction about rate increase this year, that the time to hike U.K first interest rate since 2007 is close.

The statement saw pound gained versus 14 majors as investors interpreted the news as positive economy even though the data released by the 9 member Momentary Policy Committee (MPC) does not confirmed the positive outlook yet. For instance, the 9 members agreed that MPC should continue asset purchase at the current rate. A little different outcome of the votes, like 0-1-8 or even 0-2-7 would have justified that statement better but not 0-0-9.

Also the manufacturing production data released on Wednesday, shows 0.8 percent dip from previous 0.2 percent, a figure that was last recorded in May 2013, over 2 years ago. If manufacturing production came out that low and trade balance’s deficit increased to 11.1 billion from 8.5 billion previously recorded, it is obvious demand has slowdown in the manufacturing sector which accounted for over 12 percent of the national output and 8.2 percent of the workforce.

Another important data released on September 3, 2015, services Purchasing Managers ‘ Index plunged to 26 months low, and this is a sector that represent 78 percent of the entire UK economy. It is still unclear the reason for the affirmative statement of the BOE on rate hike, let’s hope emerging market economic rout have no effect whatsoever on BOE rate’s decision.

“Markets have just been forced to re-correct an overly dovish interpretation going into the event” said head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London, Jeremy Stretch.

Currently, pound is trading above 1.5400 level against the US dollar as shown above, if 1.5454 which is a key resistant level can be sustained as the new support, the general overview of GBPUSD would be bullish and reinforce buyers upsurge for 1.5599 price level but failure to sustain 1.5473, 20 days moving average (MA) will cast doubt on possibility of pound strength to attain 1.5599 price level at this moment as it lacked enough fundamental to confirmed uptrend.