GBP/USD off three-week highs after BoE minutes

Having climbed to highs, unseen in three weeks, against the US dollar, British pound pared its advance, following the publication of the minutes of Bank of Englands most recent policy meeting, at which the benchmark interest rate has been maintained at the current record low level of 0.50%.

GBP/USD touched a session high at 1.6153 at 9:20 GMT, also the pairs highest point since October 28th, after which consolidation followed at 1.6125, gaining 0.03% for the day. Support was likely to be received at November 19th low, 1.6060, while resistance was to be encountered at October 28th high, 1.6208.

According to Bank of England (BoE) minutes, all 9 members of the Monetary Policy Committee at the bank voted in favor of leaving borrowing costs unchanged at the current record low level of 0.50% and the size of monthly monetary stimulus at 375 billion GBP. However, policymakers were concerned about the resiliency of economic recovery, underscoring risks, caused by the long debt crisis in the Euro zone, as they have been suppressing consumer spending in the country.

“There were uncertainties over the durability of the recovery and the extent to which supply growth would keep pace with demand”, BoE said.

Officials also suggested that interest rates may remain at low levels, even after the rate of unemployment in the country falls below 7%, a level considered a threshold, which would determine whether banks monetary policy should be tightened.

“Heading into the minutes sterling got a bit bid,” said Gavin Friend, a currency strategist at National Australia Bank Ltd. in London, cited by Bloomberg News. “There was a bias for a hawkish set of minutes and what you got was something quite balanced and the pound just gave back what it had made.”

The yield on UK benchmark 10-year gilts rose three basis points, or 0.03 percentage point, to reach 2.76% today. Gilts have fallen 2.8% during the year through yesterday. The Debt Management Office intends to sell 4.75 billion GBP of a 2019 note on Thursday, the same media reported.

Meanwhile, the greenback was still supported after Federal Reserve Bank Chairman Ben Bernanke said that central bank’s benchmark interest rate will probably be maintained closed to zero for a “considerable time” after asset purchases end. The labor market in the United States has demonstrated “meaningful improvement”, since the Federal Reserve’s monetary stimulus program started, Bernanke said in remarks prepared for a speech to economists in Washington on Tuesday. A “preponderance of data” would be needed in order to begin removing accommodation, according to bank’s Governor. The benchmark interest rate may remain at low levels “perhaps well after” the rate of unemployment in the country falls below Fed’s objective of 6.5%.

Ben Bernanke underscored that the central bank should focus on the so called “forward guidance”, which would facilitate maintaining short-term interest rates at low levels. However, the moment, which would mark a transition from Quantitative Easing to “forward guidance” policy has not yet been specified, as this change will be entirely dependent on a stable and continuing improvement in US labor market and also on an inflation rate approaching Fed’s target of 2%.

The above mentioned remarks echoed statements made by other Fed officials. Federal Reserve Chair-nominee Janet Yellen said in front of the Senate Banking Committee on November 14th, that as US economy was beginning to show progress, rates of inflation and unemployment still have more room to approach central bank’s targets. Markets considered such comments as rather dovish, as it seemed Fed officials wanted further solid proof of economic improvement before making a move towards reduction of monthly asset purchases. Federal Reserve Bank President for New York William Dudley said on November 18th, that he was “getting more hopeful” about economic development, while also signaling no change in stimulus anytime soon.

Elsewhere, the sterling was gaining against the euro, with EUR/GBP cross falling 0.27% on a daily basis to trade at 0.8377 at 10:29 GMT. GBP/JPY pair was trading steadily at 161.54 at 10:30 GMT, gaining 0.06%.