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GBPUSD - Eases Below 1.23 as BOE Considers Negative Rates



GBPUSD - Eases Below 1.23 as BOE Considers Negative Rates
In the last week or so the GBPUSD has rallied from a six week low below 1.21 back up the key 1.23 level where it has met resistance and eased away again. This is significant because the 1.23 level has played a role on a few occasions propping the GBPUSD up allowing it to spend the best part of the month or so consolidating and trading in a narrow range mainly between 1.23 and 1.25. It is no surprise that 1.23 is now providing some resistance. In the last month or so the GBPUSD has enjoyed two brief excursions above the 1.25 level, and the consolidation between 1.23 and 1.25 was much needed as the GBPUSD had been moving wildly back and forth in the few weeks before.

In the last week of March, it did very well to rally strongly and return to resistance at 1.25 before the recent consolidation. In the two weeks prior, the GBPUSD dropped dramatically from above the key 1.30 level down to its lowest levels in 35 years below 1.15.

Just prior to the dramatic falls, it had done well to rally back above another key level of 1.30 after applying pressure to this level, however for the most part of the previous four weeks, the sterling remained below this key level. The 1.30 level now seems a distant memory, however it is likely to offer resistance should the GBPUSD rally higher soon. For several months the GBPUSD continued to trade around this key level showing no signs of breaking away in either direction.

Throughout January the 1.30 level was under pressure as the GBPUSD eased away from a two week high above 1.32 on two occasions and both times looked poised to move lower through 1.30 before some support kicked in which has held it up well. The GBPUSD surged higher before falling sharply back down to 1.30 which has been significant for the last three months, however this volatility dried up as it consolidated around 1.30. The 1.25 level has played a role in the second half of last year which may explain why it has resumed a role again in the last few weeks offering resistance to the GBPUSD.

As widely expected, the Bank of England (BOE) recently voted unanimously to keep interest rates steady at 0.1% however made it clear it is ready to take further action should the economic disaster caused by COVID-19 continue to worsen.  That further action may be just be moving interest rates into unchartered negative territory.  The newly arrived BOE Governor Andrew Bailey said from the outset of his appointment in March, that he was against negative rates, saying, “On the whole, negative interest rates, no . . . it is not an area I would want to go to.”  That was then, this is now as the coronavirus continues to wreak havoc on the world.  Only two days ago the Governor told the UK's Treasury Select Committee, "We do not rule things out as a matter of principle.  That would be a foolish thing to do.  But that doesn't mean we rule things in either."  Governor Bailey added that the central bank is "looking very carefully at the experiences of those other central banks that have used negative rates, and a number of them are actually publishing quite interesting assessments at the moment."

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