Market Analysis

Sterling backs away as Bank of England offer dovish commentary

The British pound moved away from the best trading levels of the week against the US dollar as the Bank of England continued to sound dovish towards UK monetary policy. The central bank also downgraded GDP expectations, as it predicted that UK economic growth flatlined during the second quarter of 2019.

As expected, the Bank of England kept interest unchanged 0.75 percent, with the MPC voting unanimously to maintain the current monetary policy and pledged to closely asses incoming UK economic data points. The central bank policy statement noted that ongoing monetary policy tightening was needed at a very slow and gradual pace.

Aside from downgrading the United Kingdom’s growth prospects, the dovish policy statement also noted that UK wage growth may have peaked and that global downside risks have now increased. The statement also acknowledged that the United Kingdom economic outlook has weakened since the start of this year, which has been confirmed by recent weak data points.

UK retail sales data came in at -0.5 percent this month, while CPI inflation came in weaker than expected, leaving the UK jobs market the only real bright spot for the UK economy at the moment. BOE Governor Mark Carney continued to reiterate that current economic forecasts are based upon an orderly Brexit, which may not come to pass if Boris Johnson becomes the next Conservative party leader.

Sterling had been holding above the 1.2700 handle prior to the BOE rate decision as the US dollar came under selling pressure due to the FOMC laying out plans for a July rate cut on Wednesday. The GBP/USD pair has a short-term upward bias while the FOMC is cutting interest rates, despite the economic and political woes currently engulfing the United Kingdom.


GBP/USD Daily Mountain Chart | Source: ActivTrader


Key technical resistance for the GBP/USD pair is now located at the 1.2745 and 1.2775 levels, while major technical support is located at the 1.2660 and 1.2600 levels. A sustained bearish move below the 1.2600 level may provoke a technical test of the current monthly low, with the 1.2460 level the foremost support level below the monthly low.


Written by Nathan Batchelor, External Analyst, ActivTrades

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