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GBPUSD - Consolidates Above 1.21 as BOE Cuts Growth Forecasts



GBPUSD - Consolidates Above 1.21 as BOE Cuts Growth Forecasts
In the last week the GBPUSD has stopped the rot and consolidated right above support at 1.21 allowing it to take a breather from its drastic falls in the last month. Only two weeks ago the GBPUSD fell heavily from 1.24 down to its present trading levels, although it had been declining for several weeks after falling through the key 1.27 level. It was only at the end of June that the GBPUSD reached a one month high near 1.28 before its steady but strong decline in the time since.

The sterling has been attracted to the 1.27 level for the last two months as the GBPUSD has been content to trade very little and consolidate right around this level, up until several weeks ago. This level may offer some resistance should the GBPUSD rally higher.

Significantly through most of May, the GBPUSD fell sharply from the key level at 1.32 down to the five month low before the recent consolidation around 1.27 and fall down to 1.25. Earlier this year it was trading strongly above the 1.32 level and looking poised to push through 1.34 and attempt to regain a lot of lost ground from previous years. There are few signs of any support presently and even if it does rally a little, it faces possible further resistance at the 1.27 and 1.32 levels again.

In early March the GBPUSD fell sharply from an eight month high back down below the key level of 1.32 before rallying again and reaching a nine month high shortly afterwards. The sterling enjoyed a very positive January as it has moved from below 1.27 up to a three-month high at the resistance level around 1.32, before a subsequent decline.

Last week the Bank of England’s (BOE) nine-member Monetary Policy Committee, led by Mark Carney, unanimously voted to hold interest rates at 0.75%, as the countdown to leaving the European Union moves under 100 days.  This decision met some opposition as they left borrowing costs unchanged however was in the face of increasing risk of a ‘no-deal’ departure from the European Union.  With the backdrop of a slowing global economy and worries about Brexit, the central bank also cut its growth forecasts for the U.K. economy.  The BOE reported it now expects growth of 1.3% this year and next year, down from 1.5% and 1.6% respectively in its May forecast.  Newly elected Prime Minister Boris Johnson has vowed to deliver Brexit by 31st October “come what may”, which means of course, even if that means leaving without a deal in place.  Therefore the interest rate decision comes at a time of growing uncertainty over the terms of Britain’s departure from the EU.  The BOE said the government’s Brexit stance had prompted a “marked depreciation of the sterling exchange rate,” which has seen the pound trading at mutil-year lows.  “Underlying growth appears to have slowed since 2018 to a rate below potential, reflecting both the impact of intensifying Brexit-related uncertainties on business investment and weaker global growth on net trade,” the BOE said.

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This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.