Mervyn King finally changed his tone about inflation, and sent the British Pound above a critical resistance line. Update on the rising sterling.
Mervyn King and inflation – Background
Mervyn King, governor of the Bank of England, dismissed the rising inflation in Britain for a long time. British inflation passed the government’s target range of 1-3% a long time ago. But King still saw the darker sides of the economy. Even when he was forced to write an inflation letter to the Chancellor of the Exchequer (Alistair Darling at that time), he blamed the rising prices on high oil prices, and played a big role in holding the pair down.
But now the tables have turned. Just this Friday, the initial release for British GDP showed a growth rate of 1.1% in Q2, almost double the early expectations. Together with the improvement in employment, there are already lots of good signs for the British economy.
Things are changing also inside the bank. In the past two meetings of the MPC, one member, Andrew Sentance, voted for raising the rates. He was the sole member to think so, but he’s backed by the new Prime Minister, David Cameron.
And now, also Mervyn King acknowledges the rising inflation, and warned about it in an official appearance. In the same appearance, he also hinted that the interest rate wouldn’t rise soon back to “normal” levels. But while it won’t rise to “normal” levels, it could still rise.
The Pound faced a strong hurdle at 1.5520. This line was the highest point in February, and proved to be a strong line, succeeding in stopping the Pound time after time.
But now this line was broken – GBP/USD currently trades at 1.5630, jumping above this level and leaving dust behind it. The next level to watch is 1.5720, which was a support line in 2009, when the pair traded at a high range for a very long time.
But a more significant line stands higher – 1.5833 – this was the support line that held GBP/USD before it collapsed to lower levels, and also worked as a resistance line when the pair made an attempt to recover. If this line is broken, the road is open to the round number of 1.60, and the resistance line at 1.6070.
If the pair reverses its moves, immediate support is found at 1.5470, a line that was a resistance line not long ago, and 1.5350 – a pivotal line many times in the past.
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