Sterling fell sharply after the BoE meeting minutes showed the central bank is shifting its concerns to deflationary forces rather than inflationary pressures.
Yesterday’s comments by BoE member Fisher were only a prelude to today’s MPC meeting minutes which showed the BoE believes the current weakness in demand growth will continue for longer than previously thought. The central bank also noted risks the European debt crisis may weigh on future demand. However, what drove the sell-off of sterling this morning was the BoE left the door open for further asset purchases should deflationary forces emerge.
With fundamentals beginning to shift against sterling, a glance at the technicals show weekly and monthly stochastic are falling for the GBP/USD which could keep pressure on sterling in the near term. Short term resistance comes in at the May 24th low at 1.6060. A breach here might open the door to the March 28th low at 1.5935.
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