GBP got support after BoE's report

Bank of England Governor Andrew Bailey delivered a speech today. Let’s discuss what it means for a trader.

The Bank of England cautioned that rising new virus cases in the UK may jeopardize the economic outlook, therefore, the bank needs to take hard actions to support the British economic activity further. Indeed, it seems that the Covid-19 has engulfed the United Kingdom: new infections are climbing by at nearly 6 000 a day. Therefore, the government may impose the second national lockdown.

Besides, coronavirus is not the only problem, which the UK faces. Brexit is also a significant issue, which has to be solved. Looking back at the latest Brexit talks, the EU and the UK are still far away from reaching an agreement. However, recent upbeat comments of European Commission President Ursula von der Leyen have curbed down fears over no-deal Brexit.

The central bank pledged to take hard actions to support the economy further. Many investors thought that last week the central bank hinted at the negative interest rates during its monetary policy statement. However, today the BoE’s governor said that investors took it wrong. According to him, negative rates are just part of the central banks’ toolbox, and the outcomes of implying them in different countries have been mixed. Since there are no negative rates on the horizon, which were initially expected by investors, the GBP has got support. The market was too rash to sell the GBP at the beginning and it’s trying to correct this mistake by buying it.

In addition, on Wednesday Manufacturing and Services PMI reports will be out at 11:30 MT time! If the numbers come out better than the forecasts, the GBP will rise. In the opposite scenario, if they come out worse – the GBP will fall.

Technical tips

Immediately after the report the British pound has dropped briefly, but then started climbing up. If it jumps above the high of September 14 of 1.2875, the way to yesterday’s high of 1.2960 will be open. On the flip side, the move below the support of 1.2780 will drive the GBP/USD lower to the 100- and 200-day moving averages at 1.2730.

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Kseniya Medik