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GBP Down vs other currencies (BoE interest Rate & QE in Focus)

GBPUSD Currency Pair Bearish RichDadph

The British Pound (GBP) has unexpectedly weakened against other currencies, catching many traders, including myself, off guard. Ordinarily, I wouldn’t have focused on the GBP, seeing no compelling reason to scrutinize it closely.

My routine involves monitoring our website, and it was during one such session that I briefly glanced at the Technical Summary. There, I noticed an unusual trend of red data, leading me to discover that the GBP was the cause.

Prior to this development, we noted the following news:

  • The GBP/USD pair was awaiting the Bank of England’s (BoE) rate decision. Expectations were for the BoE to enhance its bond-buying program by approximately £100 billion, while maintaining its interest rates. Speculations of potential negative interest rates were also in focus. Additionally, the meeting minutes were anticipated with interest.
  • UK Prime Minister Boris Johnson and French President Emmanuel Macron were set to discuss Brexit negotiations. The European Commission reportedly seemed willing to compromise on fisheries, while the UK prepared a contingency plan for a no-deal outcome.
  • Germany advised its members to brace for a no-deal scenario. Moreover, US Trade Representative Robert Lighthizer expressed doubts about reaching a US-UK trade deal by year-end.

Key insights to remember:
The Bank of England increased its Asset Purchase Programme from £645 billion to £745 billion, as anticipated, while keeping the interest rates steady at a record low of 0.1%. The BoE Governor, Andrew Bailey, indicated that a move to negative rates was not imminent and commented that the economic downturn might not be as severe as initially thought in May. Following the announcement, the GBP/USD pair initially rose to 1.2560 but failed to maintain its gains, falling during US trading hours amid a renewed demand for the US dollar.

Considering the recent market movements, analysts from the UOB Group suggest that the GBP could further decline to the 1.2320 level. The currency is expected to remain under pressure unless it breaches the 1.2550 mark, which is considered a strong resistance point. Until then, a drop towards 1.2320, and possibly even 1.2270, seems likely. However, this weakening of the GBP is viewed more as a significant pullback rather than the beginning of a major trend reversal.

Source: FXStreet

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