GBP/USD: Bank of England meeting preview
In terms of GBP/USD, the key event today is, of course, the Bank of England meeting, and the majority view is the Bank Of England will keep rates on hold but could there be a surprise cut, and are the BoE going to talk about negative rates going forward?
We expect no change in the policy although the Bank. There is however a lot of speculation on whether the BoE might consider negative rates going forward. “The review of negative interest rate policy is likely to have been finished. We think the committee will say that such a policy is feasible and worth doing because it would provide a meaningful stimulus,” (Brian Hilliard, Société Générale.)
We don’t think they will and in our view it won’t provide meaningful stimulus. While some ‘external’ committee members, such as Silvana Tenreyro, have noted it is a move they are willing to make but our view is highly unlikely. We don’t expect any dissenters in terms of the vote and there is no need for negative rates…
The vaccination rollout is going well in the UK and we think the bank will be cautiously optimistic about second-quarter growth, inflation has also been above forecast and negative rates haven’t worked in the EU or Japan. We think the BoE will not be indicating that negative rates are a serious option at this moment in time.
GBP Going Down Against Oversold USD
In terms of trading GBP/USD, we are bearish and see the GBP going lower whatever the BoE does. In our view it’s not a buy on a no change in terms of policy which we see many traders talking about – the GBP is overbought on the USD and we are heavily bullish on the USD against all majors at present so we would expect any rallies to fade. Of course, if the bank were enthusiastic about negative rates this would be very bearish for the GBP but we don’t see the BoE wanting to take this option.
Technical Analysis
On the chart below, we have first resistance at 1.3670 then 1.3740 – If we were to rally we would see the GBP as a sell into first level resistance stop back behind second level. If we don’t rally, we would see the GBP as a sell through todays low at 1.3560, stop back behind first level resistance. We have had very choppy price action in this pair but the up trend now looks to be ending and if we do sell off we expect a “smoother” move to the downside to major support at 1.3200.
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