The GBP/USD advanced on Wednesday for the first time in three days after the minutes of the July Bank of England policy meetings suggested officials were edging closer to supporting a rate adjustment.
Cable rose to a daily high of 1.5644, its highest since Friday. The GBP/USD would subsequently consolidate at 1.5634, advancing 0.5% or 78 pips. Cable is likely to face resistance at 1.5672, the high from July 17, followed by the psychological 1.5700 level. To the downside, cable is likely to find initial support at 1.5545, the daily low, followed by the psychological 1.5500 level.
Cable was supported after the minutes of the July BOE meetings said “a number” of Monetary Policy Committee (MPC) members saw inflation rising above the 2% target in the medium term. As inflation approaches its target level, MPC members will have more scope in backing a long-anticipated rate increase.
“Absent that uncertainty, the decision between holding Bank Rate at its current level versus a small increase was becoming more finely balanced,” the official transcript of the July meetings said.
The MPC voted unanimously to hold the benchmark lending rate at 0.5% and the size of the asset purchase facility at £375 billion. However, the more hawkish MPC members suggested that the Greek debt crisis was the deciding factor in holding rates at record lows. According to analysts, central bank unanimity will likely end in August when the BOE publishes revised economic projections for the UK.
To-date, Martin Weale and Ian McCafferty have been the only MPC members to vote in favour of a rate hike.
According to BOE Governor Mark Carney, interest rates will probably begin rising in 2016. He expects inflationary pressures to remain tame in the short-term. However, rising UK wages will probably continue to support expectations for higher inflation over the medium-term. Average hourly earnings including bonuses rose 3.2% annually in the three months through May, the Office for National Statistics reported earlier this month. Meanwhile, headline inflation dropped to zero in June from 0.1% in May, ONS data showed.
In other trading, the pound surged against the euro on Wednesday, as the EUR/GBP fell 0.7% or 52 pips to 0.6980. The EUR/GBP faces immediate support at 0.6958, followed by 0.6900. On the upside, resistance is likely found at 0.7037, followed by 0.7070.