British Pound Cheers Distancing from Negative Rates

Key Talking Points:

  • BoE expects GDP improvement on the back of the vaccination program
  • GBP/USD narrows its range in rising wedge pattern
  • EUR/GBP breaks below 0.88 as bearish pressure builds

BOE EASES NEGATIVE RATE CONCERNS

GBP/USD has recovered from the bearish pressure seen since last week after bouncing off the 50-day SMA. Yesterday’s Bank of England meeting didn’t really shine a new light on the outlook of the economy, all while leaving the interest rate and bond-buying program unchanged at 0.1% and £896bn as expected.

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The positive takeaway from the meeting is the unlikelihood of negative rates in the near future, as the Central Bank confirmed it would take 6 months for banks to be ready for negative interest rates should they be introduced. They also mentioned they were expecting a rapid recovery in GDP levels towards pre-pandemic levels in 2021, led by the UK’s vaccination program, one of the highest rates in Europe thus far.

The meeting did not come without a message of caution, as the outlook still remains very uncertain and it will be conditioned by the course of the virus, warned the members of the MPC. We also need to be reminded that we are living in a post-Brexit agreement era, and there is still a lot of uncertainty about the future relationship between the two trading blocs.

BoE Recap – Bank of England says Negative Rates Are Not Coming, GBP/USD Jumps

GBP/USD LEVELS

The Daily chart confirms that GBP/USD has been trading in a rising wedge pattern, where the daily range is becoming more constrained. Aside from yesterday’s bearish breakout, the pair has been confined to this technical pattern since mid-December, experiencing higher highs and higher lows, with a slowing of momentum usually preceding a price reversal to the downside.

Intraday resistance may be found at 1.3720 before we see another attempt to break last week’s 3-year high at 1.3759, at which point the upper bound of the rising wedge comes into play and sellers may see this area as a good entry point. A break above this area would signal that buyers are in control and could see GBP/USD attempting to break 1.38.

To the downside, the lower bound of the wedge may offer support at 1.3640 before the 50-day SMA (1.3570) has another attempt at stopping selling pressure. If bearish pressure continues, the next area for sellers to target would be the 1.34 mark.

GBP/USD Daily chart

GBP/USD, EUR/GBP: British Pound Cheers Distancing from Negative Rates

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EUR/GBP LEVELS

EUR/GBP has been drifting lower since breaking below the 0.8863 multi-month support line and is now trading below 0.88 for the first time since May 2020. The pair is now attempting to fall under the 61.8% Fibonacci but strong oversold conditions are showing on the stochastic and RSI, pointing at a possible support area in the short-term. An increase in selling pressure may see the pair push towards horizontal support at 0.8693.

EUR/GBP Daily Chart

GBP/USD, EUR/GBP: British Pound Cheers Distancing from Negative Rates

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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