Market Overview

19 June 2020

British Pound Looks Down Amid Rising Negative Rate Fears

The British Pound plummeted on Thursday as the Bank of England (BoE) is considering bringing interest rates to the negative territory from the current rates of 0.1%. BoE governor Andrew Bailey stressed that there was no immediate plan to cut rates below zero but confirmation that he wants the option to reflect the severity of the crisis. Although the British financial regulator has not put forward any actions regarding interest rates in its meeting on Thursday, investors believe that the BoE may lower them shortly.

Recent macroeconomic data for the U.K. turned out to be disappointing as the consumer price index for May was only 0.5% against 0.8% for April. Average salaries rose just one % after climbing 2.3% during the previous month. Overall constant Brexit uncertainty and exaggerated debates over negative interest rates negatively affects the Cable and creates expectations that the BoE may loosen the monetary policy.

The decision by the British monetary regulator about adding 100 billion Pounds to its bond-buying programme (to 745 billion Pounds) was a predictable dovish move and the Pound was not expected to react sharply. But the Cable suddenly plummeted from 1.25 to 1.24 just after the BoE’s decisions were announced.

What is important in this regard is that the Cable fell below the strong support level of 1.2450. Technically, it creates a perfect opportunity for the British currency to go deeper to the 1.2300 area and makes 1.2450-1.2500 levels ones of strong resistance. Factors that put pressure on the Pound may be considered as long-lasting, and the recent drop of the British currency technically confirmed the downward trend in GBP/USD.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.


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