GBP/USD Rallies Despite A BoE Rate Cut

on Mar 12, 2020
Updated: Apr 3, 2020
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GBP/USD trades nearly 0.5% higher despite an emergency rate cut from the Bank of England (BoE) by 50 basis points to a historic low of 0.25%.

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Fundamental analysis: Government to introduce a new stimulus package

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The Bank of England announced this morning an emergency cut to interest rates 50 basis points, in an attempt to mitigate the economic impact from the coronavirus outbreak.

“At its special meeting ending on 10 March 2020, the Monetary Policy Committee (MPC) voted unanimously to reduce Bank Rate by 50 basis points to 0.25%,” the Bank of England said in a statement on Wednesday.

The new rate of 0.25% is a historic low for the BoE, which has been forced to act and follow other major central banks, namely the U.S. Federal Reserve.

“Following the spread of Covid-19, risky asset and commodity prices have fallen sharply, and government bond yields reached all-time lows, consistent with a marked deterioration in risk appetite and in the outlooks for global and U.K. growth,” it is noted in a statement.

Investors are also widely expecting the UK Chancellor Sunak to present a budget, including a stimulus to support business activity. According to various media reports, PM Johnson is considering an ambitious plan that focuses on infrastructure spending and on the National Health Service (NHS).

The BoE will also help, adds the bank’s Governor Mark Carney in a press conference following the emergency rate cut.

“The Bank of England’s role is to help UK businesses and households manage through an economic shock that could prove large and sharp but should be temporary”.

Technical analysis: Pound stays resilient, ignores the rate cut

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Although the sterling lost around 100 pips following the BoE’s emergency statement this morning, it has managed to recover all losses and trade positively on a day. It appears that the investors have already priced in this morning’s rate cut.

“The pound’s recovery against the dollar also comes as President Donald Trump failed to appear at the White House’s press conference about US fiscal stimulus,” says analyst Yohay Elam.

GBP/USD daily chart (TradingView)

As seen in the chart above, the price action has corrected lower in the past few days after a strong rally on the back of the dollar weakness. The price action stopped at 50% retracement, a level that will continue to provide a strong support to the bulls. If broken, the next support in line is located around the $1.2570 mark.

On the upside, the $1.3200 handle remains the key short-term resistance, while the bulls would still like to see a test of the descending trend line (the red line) around the $1.3350 mark.

Summary

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GBP/USD has stayed upbeat despite an emergency rate made by the Bank of England this morning to limit the impact of the coronavirus outbreak on the economy.

GBP Forex Trading Ideas