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On Thursday, the Bank of England (BoE) kept interest rate unchanged. According to analysts from TD Securities this should keep the pound firm for now. According to them, the near-term outlook is more mixed for pound. They think the BoE is unlikely to cast a long shadow over the pound as market attention remains focused on bigger-picture concerns. 

Key Quotes: 

“January’s BoE policy decision skewed toward the more hawkish end of what we expected. In line with this, sterling is the day’s best performing G10 currency. All else equal, today’s decision should return our focus to upside near-term risks for sterling. That said, we do not want to overstate the case. In contrast with what might typically be the case, the BoE’s directional significance for the pound has diminished in recent months. Sterling’s monetary policy backdrop remains important, of course, but bigger-picture considerations will continue to dominate for the foreseeable future.”

“We think GBP continues to face notable two-way risks for now. This leaves us looking for fresh catalysts for directional guidance.”

“In cable, the first area of interest to the upside comes in at 1.3105, a whisker below the post-decision high seen thus far. Spot’s inability to push clearly above this threshold indicates some reluctance to chase the market higher. Above that pivot, we are focused on 1.3150 ahead of last week’s spike high at 1.3173.  The FX market seems particularly reluctant to chase this move — at least thus far — however. As such, it may be more of an effort to get there than we previously thought.”

“Against this fairly nuanced backdrop, a renewed escalation of Brexit concerns or a further deterioration in global risk appetite could see GBP’s upside potential reverse. Here, the 1.2955 represents initial the doorway to any deeper retracement. Below this, the late-December lows (1.2905) could provide further buying interest ahead of crucial support we see at 1.2825.”