FxWirePro: Prepare to short pound despite hawkish BoE with longer-term outlook

The pound got boosted by hawkish commentaries from some of the policymakers at the Bank of England (BoE) including Governor Carney in recent times, despite fallouts from Brexit and an election that has left the UK Prime Minister Theresa May trying to govern via a minority government. The pound is currently trading at 1.294, buoyed by hawkish comments from a post-election low around 1.27 area.

We at FxWirePro believes that despite hawkish commentaries, which would keep the pound buoyed from time to time, will not be sufficient to prevent gradual decline against the dollar as well as other major counterparts. While BoE policy-makers are choosing to maintain hawkish rhetoric largely due to higher inflation that is hovering around 2.9 percent, cracks from Brexit have started to surface. Reports, as well as data, have confirmed slowdown in UK Real Estate Sector. Both manufacturing and services PMIs have declined for a third consecutive month in June and construction PMI has also faltered. The growth in the first quarter was weakest growth rate in a year, as the economy grew by just 0.2 percent.

We recommend adding short positions to our longer-term outlook that forecasts a parity with the dollar. However, we do not recommend selling here but at rallies around the resistance line in the chart. This is a key resistance line that has been in play since 2014.