GBP/USD fluctuates as traders react to the BOE interest rate decision
As expected, the bank left the interest rate unchanged at 0.10%.
It also raised the target of its quantitative easing program to £875 billion.
The GBP/USD pair will fluctuate today as traders react to the outcome of the Bank of England (BOE) monetary policy meeting. It is trading at 1.2960, which is below yesterday’s high of 1.3140.
GBP/USD little changed
Decline in British economic growth
Great Britain is in a difficult phase, as the latest economic figures show. The national debt has risen to more than 2 trillion pounds, which has led to an interest rate cut by Moody’s. The unemployment rate has also risen, while inflation remains low.
The government has also announced a major freeze in England as it tries to deal with the new wave of the virus. In fact, the number of cases is on an upward trend, reaching a peak of 1.1 million this month.
All this is an indication that growth will come to a halt in the third quarter, as the latest PMI figures show. According to Markit, the PMI for services fell from 56.4 in September to 51.6 in the previous month. This was an important figure considering that the sector is responsible for more than 70% of the economy.
Bank of England decision
Against this background, the Bank of England held its meeting this week. In a statement today, the Bank unanimously voted to leave the interest rate unchanged at 0.1%. At the same time, members voted to raise the ceiling for quantitative easing from the previous 725 billion pounds to 875 billion pounds.
Nevertheless, some analysts question whether the bank has more room for maneuver with its asset purchase program. For one thing, it now owns about 44% of all outstanding government debt. That is almost twice the amount of US government bonds the Fed owns. According to its guidelines, the bank can still increase this figure to 70%.
In the statement, Governor Andrew Bailey said that the bank will introduce further instruments to support the economy. Analysts believe that these include negative interest rates. In fact, according to the Financial Times, the overnight index swap forward rate is pricing the interest rate at -0.10% for the next few years.
Interest rates in the UK could turn this year
The idea behind the negative rates is simple. They would reduce the cost of borrowing and mortgages, which would stimulate spending. It would also stimulate spending by preventing people from saving. In a statement, the bank said
“The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target on a sustainable basis.
Later today, the Fed and the Norwegian Central Bank will also announce their interest rate decisions.
Technical Outlook GBP/USD
Technical Table GBP/USD
On the daily chart, we can see that the GBP/USD price is floating in a tight range after dropping to a low of 1.2858 yesterday. The price is at the same level as the 25-day and 15-day moving average. It is also slightly higher than the bottom of the pink channel. Most importantly, it is above the rising support line that connects the May, June, September and November lows. Therefore, I suspect that the bullish trend will continue as the bulls are targeting the next resistance at 1.3200. Read more about the technical analysis here.