After taking a back seat while other major currency pairs stole the show with a fair amount of movement and volatility (yes, I’m looking at you USD/JPY), the GBP/USD came back into the limelight today as the Bank of England prepared to release its monthly Policy Report and interest rate. The price had been coiling up in advance of the release over recent days, stuck below the psychologically key 1.3000 level within a long-term bullish trend. The price failed yesterday at the recent swing high, which was a little ominous for bulls, so it wasn’t a great surprise today when following the Bank of England’s announcement, the price spiked down below the support level of 1.2900, and just kissed the further support level of 1.2850 before rebounding bullishly by 40 pips to a high (as at the time of writing) of 1.2890. If the price reaches 1.2900 soon, its reaction there should be significant, as a classic bearish play would see the level flip from former support to current resistance and hold.
The move down wasn’t very large, certainly not in terms of post-central bank announcement movements, and the Bank of England itself had no big surprises. Everything was almost the same as last month’s release, although the nuances were slightly more bearish for the Pound. The Bank’s GDP growth forecast was downgraded from +2.0% to +1.9%, with the major blame being apportioned to stagnant wages and rising inflation (from a very low level). Earlier, British Industrial Production data had come in at a markedly worse level than had been expected by the consensus forecast, so the market was already in the mood to sell the Pound.
However, all this is small potatoes compared to the major long-term drivers of the Pound’s relative value– the result of the British General Election next month, and the terms of the U.K.’s exit from the European Union in 2019. Both are still up for grabs, especially the latter. Should matters progress in a way that impresses the market into a conviction that the U.K.’s economic prospects will brighten, it could be that the GBP/USD currency pair has a long way to rise from its recent 30-year lows.
