Bank of England: Cautiously optimistic with negative rates still on the table

No change in policy is expected. The BoE could endorse negative rates as a tool but are expected to steer clear of using them. With vaccine numbers ramping up the central bank could also sound cautiously optimistic on the outlook.

Charts (2)

When?


Thursday at 12:00 noon followed by Andrew Bailey’s press conference at 12:30

What to watch?

The Bank of England is not expected to move on policy when it makes its monetary policy announcement and updates the bank’s quarterly forecasts. 
The BoE raised its QE purchases in November to £875 billion, up from £725 billion. The health of the UK economy has deteriorated further since the last meeting as the UK entered into its third national lockdown. 

Not quite ruling out negative rates

Whilst the central bank has refused to rule out cutting interest rates BoE Governor Andrew Bailey has put more distance between himself and a move into negative rates in recent comments. Meanwhile, other members on the monetary policy committee remain enthusiastic about the strategy. 

In this meeting the BoE will publish the results to its consultation on negative interest rates. The central bank is broadly expected to embrace negative rates as a tool but to stop well short of using them. Expectations are for interest rates to remain at or above 0.1% the current rate through to mid 2023

Brighter outlook eases the pressure on BoE

That said, with Brexit behind us and the vaccine rollout gathering pace a solid economic rebound could be on the horizon in Q2 and H2. There is a good chance the central bank will focus on the more upbeat outlook over the near-term economic hit from lockdown. With this in mind it appears unlikely that the BoE will act. 

GBP/USD technical analysis

Following another retest of the multi year top for GBP/USD of 1.3750 the price has rebounded lower. It has fallen below its 50 sma on the 4 hour chart and is currently being contained by the 100 sma at 1.3665.

The pair remains within the familiar 150 pip range for a second straight week after repeated failures to convincingly break above 1.37 resistance zone suggestion weakness in the price at this level. 

The 4 hour chart is starting to paint a bearish picture, supported by a depressed RSI. However, the weekly chart supports a bullish set up and the monthly chart fading bullish momentum amid overbought conditions. With a mixed picture GBP/USD could remain directionless for now.

Immediate support can be seen at 1.3660 100 sma prior to 1.3605 low 26th January. A break through here could see more bears jump in.
Should 1.3660 hold, resistance at 50 sma at 1.3695 comes into play before the bulls look for another attempt on 1.3750.

Learn more about trading forex


More from GBP

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.