GBP/USD slides after BoE warning

The British pound has dropped significantly on Thursday. In the European session, GBP/USD is trading at 1.3255, down 0.73% on the day.

BoE says UK recovery could take years

Despite a spate of positive economic releases, the markets were focused on negative comments from the Bank of England, which resulted in GBP/USD losing ground and falling below the 1.33 line. BoE policymakers warned that the risk to the UK economy from the coronavirus crisis was greater than the bank had projected in August. At that time, the BoE estimated that the British economy would recover to pre-pandemic levels by the end of 2021. However, on Tuesday, Gertjan Vlieghe, a member of the BoE’s Monetary Policy Committee, said that it could be several years before the economy returned to full capacity, and for inflation to return “to target”. The BoE’s inflation target stands at 2 percent, and last month the bank warned of the danger of inflation turning negative.

Meanwhile, British releases were mostly positive. The House Price Index climbed to 2.6% in July, up from 2.1%. This marked the sharpest gain since November 2018. There was more good news from the services sector, as the Services PMI accelerated to 58.8, up from 56.5 and in expansion territory for a second successive month. Business activity has shot up since the second quarter, when the average reading was just 29.8, which indicates significant contraction. The fly in the ointment was a disappointing release from BRC Shop Price Index, which came in at -1.6 percent. The indicator hasn’t registered a gain since May 2019.

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GBP/USD Technical

GBP/USD lost ground in the Asian session and has sustained further losses in European trade

• GBP/USD broke below support at 1.3288 late in the Asian session. Below, there is support at 1.3226
• There is resistance at 1.3406. The next resistance line is 1.3462.
• The pair is putting downward pressure on the 10-day MA line

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