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GBP/USD Continues Descent after the BoE Minutes

GBP/USD is breaking into new lows on the year after the Bank of England (BoE) released its meeting minutes for its March 4-5 meeting. Let's take a look at the reaction on the charts.

BoE Minutes (official release PDF):
Before getting to the technicals, let's review the minutes. Remember the BoE held rates and maintained its asset purchase program. The minutes revealed a less dovish tone for the short-term because there was no more voice for a rate cut in the immediate future. However, there was concern of low inflation and not surprisingly, the bank things the GBP might become too strong. While it has been falling against the USD, it has also been gaining against the euro.

The medium-term monetary policy outlook therefore looks slightly dovish because of the BoE's inflation assessment. And, we see that the BoE has taken to jawboning against the strength of its currency. We have seen the same rhetoric from the RBA and RBNZ, as which we have seen, can cause some medium-term pressure on the their exchange rates.

GBP/USD 4H Chart 3/18

(click to enlarge)

GBP/USD Reaction:
The 4H chart shows a very persistent bear run since February, after a corrective rally to about 1.5550. After a brief consolidation at the end of last week, price action was already heading down this week. The BoE minutes nudged it along.

We have to jump to the monthly chart to look at the next key support because cable is in lows not seen since 2010.

GBP/USD Monthly Chart 3/18

(click to enlarge)

The monthly chart shows that since the dip in the 2008 financial crisis when the USD had the safe haven flow, GBP/USD has been consolidating. In the current fundamental environment, the technical picture has the 1.4226, 2010-low in sight since recently breaking the 2013-2014 high.

If GBP/USD gets to the 2010-low, we will need to re-evaluate the monetary policy paths of the FOMC and the BoE again. If the FOMC is indeed going to raise rates around the middle of the year, and if the BoE continues to talk down its currency, look for the 1.3514 low from 2008-2009.