Pound steady as BoE raises QE

GBP/USD has posted slight gains, recovering losses from earlier in the day. In the European session, the pair is trading at 1.3027, up 0.29% on the day.

Cable pushes across 1.30

GBP/USD exhibited significant volatility on Tuesday and Wednesday, as currency markets were in flux due to the election in the United States. Pollsters had predicted a convincing victory for Democrat Joe Biden, but it appears he will limp into the White House with a narrow margin of victory. Cable has settled down on Wednesday and punched past the psychologically important 1.30 level. GBP/USD dipped lower but quickly recovered and is currently in positive territory.

 Bank of England surprises with QE

The street was prepared for a QE hike from the Bank of England, as the UK economy is in need of a boost. The country is in the midst of a second wave of Covid-19, which has led to a lockdown, which will of course hamper business activity. As well, the Brexit clock is ticking towards midnight on December 31st, at which time the UK officially departs from the European Union. The lack of an agreement with only weeks to go is weighing on the economy and the British pound.

Given the difficult economic conditions, the markets were projecting that the Bank of England would increase QE increase by GBP 100 billion, up to GBP 845 billion. However, the bank surprised the street by raising QE to the tune of GBP 895 billion. As expected, the BOE held rates at 0.10%. Investors were concerned that the rate statement might mention negative rates, which the bank has entertained as an option. Earlier in the year, the pound dropped sharply when the BE publicly stated that negative rates were on the table. This forced BoE Governor Bailey to issue a puzzling denial that the BoE was in fact, not considering negative rates. In any event, the MPC said that future easing would be adopted by additional QE, putting to rest investor concern of negative rates for the time being.

 

GBP/USD Technical

  • GBP/USD is facing resistance at 1.3117. Above, there is resistance at 1.3241
  • There is support at 1.2892, followed by support at 1.2791
  • The pair has pushed above the 50-day MA, which has been relevant all week

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.