Forget the Queen’s Speech, it was all about Andy Haldane this morning. The pound jumped and the FTSE dropped after the Bank of England’s chief economist and Monetary Policy Committee member said he’s ready to vote for an increase in interest rates "relatively soon". This came as a major surprise because Mr Haldane has long been a known dove. He is going head-to-head against the Governor Mark Carney, who is fast losing support on his dovish stance. He said that “a partial withdrawal of the additional policy insurance the MPC put in place last year would be prudent relatively soon.”
Mr Haldane said that the risk was that the Bank tightened its belt too late rather than too early. This is something which the Bank of Canada is also worried about and what the US Federal Reserve had long been wary of, and the European Central Bank better be ready for. The latter came across pretty dovish at its last meeting. With the BoE turning hawkish and ECB remaining dovish, the EUR/GBP could come under pressure in the coming days and weeks.
The EUR/GBP has actually respected its long-term resistance in the 0.8860-85 range, an area which was formerly support. But so far we haven’t seen a breakdown in market structure. Once a key support area such as 0.8720-40 breaks, then we may see a more decisive move southbound. Until that happens, one has to be wary of the possibility for a rebound, because of the higher highs and higher lows. My bearish outlook would become invalidated upon a potential break above that 0.8860-85 resistance range.
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