GBP/USD Rebounds Post BoE

BoE keeps rates unchanged

Charts (1)

After significant action from the BoE over the past 2 months, Andrew Bailey & Co. voted to keep monetary policy unchanged, in a moved applauded by the markets. GBP/USD, jumped 0.2% to a session high of US$1.2377 after the BoE voted 7-2 to keep rates unchanged. The fact that only two members dissented is being viewed as pound positive.

Early on in the coronavirus crisis, the BoE cut interest rates twice to a record low of 0.1%, it also increased its QE programme by £200 billion. The BoE is following in the path of the Fed and the ECB, taking stock of where it stands after significant action. The central bank will want to see how the action taken so far supports the UK as it gradually eases out of lock down.

Andrew Baily, governor of the BoE repeated that the bank stands ready to ease further.

Dire projections
The Pound has managed to hold those gains even after a dark outlook for the UK economy from the central bank. Forecasts of a -14% contraction in GDP, expectations of higher unemployment and a tepid recovery which could drag into next year. Inflation is expected to slip below 1%.
Given such dire projection, more QE is almost a given, its just a matter of time. 
Attention will now turn towards Boris Johnson and his exit strategy, which is expected to be announced on Sunday. 

US Initial jobless claims
Looking ahead, attention will turn to US initial claims data. Expectations are for a further 3 million Americans to have filed for unemployment insurance in the week of 1st May. This will take the total to 33 million, or 20% of the US labour force in just 7 weeks, as the coronavirus crisis reaches further into the labour market. Whilst this week would represent a 56% decline from the top is still shockingly high, particularly given that several states have lifted lockdown restrictions and that the highest level of initial claims reached during the financial crisis was 665,000. 

Whilst the shocks of the earlier releases have passed, these figures will need to be digested on top of yesterday’s 20.2 million private sector job losses and ahead of tomorrows non-farm payroll.

Levels to watch:
GBP/USD rebounded off session lows pierce through US$1.24. The pair remains below 50 sma on 4 hour chart. A move above $1.2450 (50 sma) could see more bulls jump in driving the price to resistance at $1.2486 (high 5th May) prior to $1.2640/50 (high 30th April & 14th April).
Immediate support can be seen at US$1.2310 (today’s low) prior to $1.2247 (low21st April)

Build your confidence risk free

More from GBP

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.