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The highly anticipated BOE Inflation Report is out, and it triggers a lot of action. Carney announces that he will not hike interest rates until unemployment drops to 7%. He is taking a page from the Fed.

GBP/USD was sliding below 1.53 towards the release, also suffering from a general USD strength in markets. And now, GBP/USD extends its drops and falls all the way to 1.5207 before bouncing back above 1.5215. Update: during the press conference, cable is recovering back to 1.5250.

U-turn: After the crash, GBP/USD is now bouncing back big time and trading at 1.5340 – a move of 140 pips.

Update 2: GBP/USD breached 1.54 in a 200 pip move during Carney’s press conference.

Press conference highlights:

  • MPC judges a significant amount of slack in the economy.
  • Sustained robust growth is needed.
  • CPI is likely to remain around the 2.9%: import prices push inflation. Underlying domestic pressures remain subdued.
  • Recovery is underway and broadening.
  • More QE could be seen if needed.
  • No reduction of QE due if unemployment remains above 7%.
  • Primary goal of BOE is price stability. Inflation is expected to slide below 2% in 2015.
  • A fall of unemployment under 7% will not trigger a rate hike – it is a threshold, not a trigger (same as Fed).
  • The move is meant to assure that interest rates will not rise prematurely and provide more clarity.
  • Median unemployment rate should be 7.3% in the end of the 3 year horizon.
  • Forward guidance doesn’t mean automatic moves, but just provides more clarity. It is part of a mixed strategy: low interest rates, QE and Funding for Lending scheme.
  • Relief of new growth, but no reason for satisfaction.

In the recent rate decision, the BOE did not change policy but did promise to publish a review about forward guidance in the upcoming inflation report, raising expectations.

The most updated economic indicators were all positive: growth reached 0.6% in Q2, PMIs are running higher (with the most important sector, services, crossing the high 60 line), stronger retail sales a fall in unemployment.

However, with persistently high inflation, it is hard for the Bank of England to make real policy moves. Clear resistance is at 1.54 with 1.5330 working as minor resistance. Support lies at 1.5260 followed by 1.52.

For more, see the GBP to USD forecast.