GBP/USD breaks key resistance after mild BOE interest rate decision

GBP/USD breaks key resistance after mild BOE interest rate decision
Written by:
Crispus Nyaga
6th August, 10:27
  • The GBP/USD pair moved above a key resistance level as traders reacted on the BOE interest rate decision.
  • The bank left interest rate and the quantitative easing program unchanged.
  • The pair also reacted to the strong construction PMI data.

The GBP/USD pair is up by almost 0.50%, becoming one of the best-performing pairs in the developed world. The pair is trading at 1.3175, which is its highest level since March 9 this year.

GBP/USD
GBP/USD upward trend continues

Bank of England decision

The GBP/USD is mostly higher because of the Bank of England (BOE), which delivered its interest rate decision early today. The members of the committee voted unanimously to leave interest rate unchanged. They also voted to leave the target of the ongoing quantitative easing program unchanged at £745 billion. All this was in line with what analysts polled by Reuters were expecting.

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In the statement, Andrew Bailey, said that the coronavirus pandemic has had a negative impact to the UK economy. He expects that the economy contracted by 20% in the second quarter, slightly better than the US contraction of more than 32%.However, he cited high frequency numbers that show that the economy is on a recovery path.

For example, data released this week showed that manufacturing, services, and construction PMIs have returned to growth. Similarly, data released last week showed that house prices have started to rise as mortgage applications rise.

He now expects that the unemployment rate will rise to about 7.5% this year as the economy continues to rebound in the near term. He also expects the consumer price index will fall below 2% to about 0.25% in 2020. He said:

“As these effects unwind, inflation rises, supported by a gradual strengthening of domestic price pressures as spare capacity diminishes. In the MPC’s central projection, conditioned on prevailing market yields, CPI inflation is expected to be around 2% in two years’ time.”

Meanwhile, the GBP/USD pair is also reacting to the strong construction PMI data released today. According to Markit, the construction PMI rose to 55.3 in July, the second consecutive month it has been in a positive territory. This growth was mostly because of a sharp increase in residential constryction. Commercial and civil engineering had modest growth. In a statement, Tim Moore of Markit said:

“Construction companies took another stride along the path to recovery in July as a rebound in house building helped to deliver the strongest overall growth across the sector for nearly five years.”

GBP/USD technical analysis

GBP/USD
GBP/USD technical forecast

The GBP/USD pair rose to an intraday high of 1.3200. On the daily chart, the price is above the 50-day and 100-day weighted moving averages. It is also above the 78.6% Fibonacci retracement level. Most importantly, it is attempting to stay above the March 09 high of 1.3202. Therefore, I expect that the GBP/USD pair will continue rising as bulls target the next resistance level at 1.3300.

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