GBP/USD is clawing back losses after the BoE made an emergency 50 basis point rate cut early on Wednesday, in an unscheduled move. This takes the interest rate from 0.75% to 0.25%, ahead of the Chancellor’s arguably more important budget due later in the day.
The central bank has followed in the footsteps of the Federal Reserve, as it looks to shore up the UK economy in the face of the oncoming coronavirus risk. The move should help support consumer confidence and businesses ahead of the expected combined supply shock/ demand shock which is due to hit not just the broader economy in the coming weeks but more acutely smaller businesses.
BoE highlighted a marked deterioration in risk appetite and in the outlook for economic growth. This is undoubtedly a punchy move by BoE and could be followed up by further moves if necessary, including additional QE.
The cut comes ahead of the Chancellor’s Budget later today. It is an attempt to show a combined approach, putting the need to boost confidence over any potential concerns of BoE independence.
Budget up next
UK Chancellor Rishi Sunak’s Budget is the arguably more important of today's events. It is expected to be dominated by money for the NHS and to businesses to help them survive over what is expected to be a very difficult few months.
The Chancellor is expected to be generous in his fight to limit the economic impact that coronavirus will have on the UK economy. Investors will be looking for strong short-term measures and spending plans that will prevent a very hard but temporary hit on the economy becoming something far more deeply entrenched and longer term.
Should the markets consider than Chancellor Rishi Sunak has not gone far enough with spending to support the economy, the pound could fall.
GBP/USD levels to watch
GBP/USD dived an initial 100 points hitting a weekly low on the news of the cut, in a knee jerk reaction. However, the pair is clawing back those losses and is pushing back into positive territory at $1.29.
Whilst GBP/USD traded above the descending trend line in the previous session, it hasn’t managed to remain above it. A sustained move above $1.2970 could negate the current bearish trend.
Immediate support can be seen at $1.2828 (today’s low) prior to $1.2725 (low 28th Feb) and $1.2705 (200 sma).
Resistance can be seen at $1.2970 (trendline) ahead of $1.3130 (yesterday’s high) and $1.32 (Monday’s high).
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