The British pound continues to show mid-week volatility and has given up the gains made on Wednesday. In Thursday’s European session, GBP/USD pair is trading at 1.2883, down 0.66%.
BoE spooks markets with negative rate talk
As widely expected, the Bank of England held the course on interest rates and QE. The decision to keep the Official Bank Rate at 0.10% and QE at 745 billion pounds was unanimously agreed to by all nine MPC members. Investor attention was directed at the BoE’s Monetary Policy Summary, which stated that MPC members had discussed the possibility of negative interest rates, given the current climate of low equilibrium rates. The last thing that a currency investor wants to hear is negative interest rates; predictably, the British pound has dropped sharply on Thursday, falling over 0.60%.
On Friday, the UK releases Retail Sales, the primary gauge of consumer spending. In August, retail sales slowed to 3.8%, down sharply from 13.9% a month earlier. Investors are braced for a weak reading of 0.8% in August, which would indicate that consumer spending is tapering off. A reading below expectations could sour sentiment towards the pound and weigh on GBP/USD.
Federal Reserve to maintain accommodative policy
At its policy meeting on Wednesday, the Federal Reserve maintained rates between 0.00% and 0.25%, where they have been pegged since March. Fed Chair Powell recently announced a major change in policy, saying that the Federal Reserve would now adopt an “average inflation target’ of 2%, which means that the Fed would allow inflation to overshoot the 2% threshold before it hiked rates. At its meeting, the Fed said that it would maintain an accommodative monetary policy, and analysts don’t expect the Fed to raise rates prior to 2023.
- GBP/USD tested support at 1.2892 in the Asian session. The next support level is at 1.2818, protecting the 1.28 level
- There is resistance at 1.3024, followed by resistance at 1.2082
- GBP/USD continues to press against the 10-day MA line. If the pair breaks above this line, it would indicate an upward trend
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.