British Pound Extends Losses in European Trade

Cable turned away from 1.6550-60 after the pair failed to take out Monday’s 1.6557 high. Profit taking by dollar and yen shorts contributed to the early European action, which saw Cable trade in to 1.6471. Ahead of today’s testimony from Fed Chairman Bernanke the dollar found support after he said in a WSJ column that the FOMC will credibly fight inflation, but emphasized that now is not the time to tighten policy. BoE’s Deputy Governor Bean also talked about interest rates in an interview on Monday, stating that he hopes ultra-low rates will be short lived. He added as the economy recovers so we would expect to reduce unusual stimulus and push rates back to a more normal level. The underlying trend for Cable is still favorable for a buy on dips strategy, with support tipped at 1.6450 and 1.6400-20, while movement in to 1.6550 should remain congested, with medium term risk still tempering more aggressive action.