Pound jumps as BoE holds rates

The British pound has recovered from losses earlier in the day. Currently, GDP/USD is trading at 1.3676, up 0.25% on the day.

BoE signals no negative rates

Investors are allergic to negative interest rates, and concerns that the BoE was contemplating such a move made the markets uneasy ahead of the Bank of England’s policy meeting earlier in the day. Sterling weakened ahead of the meeting but moved higher after the BoE appeared to move away from negative rates. Although the central bank put lenders on notice that they would have six months to prepare for negative rates, investors were placated by an assurance from BoE Governor Bailey that this notice was not a signal that the bank planned to implement negative rates.

With regards to monetary policy, there were no surprises as MPC members voted unanimously to maintain rates at 0.10% and asset purchases at GBP 895 billion. As for the economy, the bank stated that “the outlook for the economy remains unusually uncertain”. The BoE downgraded its forecast for GDP for 2021, from 7.25% in the November forecast to 5.0%. It also projected a decline in Q1 growth of about 4 per cent. However, the bank added it expected the economy to recover rapidly over the course of the year, with the rollout of the vaccination programme. Despite this rather bleak message from the BoE, the pound has moved slightly higher today.

With the BoE decision behind us, the markets can now shift attention to the government’s budget, which will be issued on March 3. The BoE stayed on the sidelines, and the fact that borrowing costs remain low does make Chancellor of the Exchequer Sunak’s job a bit easier should he decide to implement additional aid to bolster the economy.

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GBP/USD Technical

• GBP/USD faces resistance at 1.3768. Above, there is resistance at 1.3838
• The pair tested support at 1.3619 in the Asian session and put pressure on support at 1.3540 before rebounding higher. The 50-day moving average (MA) follows closely at 1.3519

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