GBP/USD forms rising channel as UK negative rates chatter continues

GBP/USD forms rising channel as UK negative rates chatter continues
Written by:
Crispus Nyaga
January 12, 2021
  • The GBP/USD pair rose today after a BOE voting member championed negative rates.
  • She said that negative rates had worked well in Japan, Sweden, and Switzerland.
  • UK retail sales dropped at the highest pace since 1995.

The GBP/USD pair bounced back even after the relatively weak retail data and talk of negative interest rates in the United Kingdom. The pair is trading at 1.3593, which is substantially higher than yesterday’s low of 1.3461.

UK retail sales slumped in 2020

The UK retail sector slumped the most in 25 years in 2020 as the c0untry continued to deal with the coronavirus pandemic. In a report released earlier today, the British Retail Consortium (BRC) said that total sales dropped by 0.3% in 2020, the worst performance since 1995. 

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This weak performance was due to the lockdowns that had a direct impact on hotels, restaurants, and pubs. As a result, sales of food bought from shops increased by 5.4% in 2020. Further, online retailing jumped by more than 50% as most people turned to e-commerce for their purchases. This benefited companies like Ocado and Tesco that have a large presence in e-commerce.

This trend will continue this year since the UK government has already announced new lockdown measures to curb the spread. However, the situation could change later this year after more people get vaccinated.

The GBP/USD rose even as the Bank of England (BOE) signaled that it would implement negative interest rates if the situation continued to worsen. Such a situation would be bad for the British pound and UK banks. 

In a statement, Silvana Tenreyro, a member of the BOE said that such rates would support the economy. She cited countries like Switzerland, Sweden, and Japan that have such rates. However, some analysts have warned that the situation is different in the UK, where the banking sector is a major employer.

Later this week, the GBP/USD will react to the planned speech by Joe Biden, who will unveil his stimulus agenda. It will also react to the ongoing political crisis in the United States. 

GBP/USD technical outlook

GBP/USD technical chart

The GBP/USD pair rose to an intraday high of 1.3600 today. On the daily chart, this price is between the rising channel that’s shown in black. Also, the price is slightly above the 25-day and 50-day exponential moving average and the important support at 1.3485. The Relative Strength Index (RSI) is also slightly below the overbought level. 

Therefore, at this point, the outlook is neutral, with the key levels to watch being the upper and lower sides of the channel at 1.3760 and 1.3400, respectively. You can create an account with a good high leverage forex broker to take advantage of this price action.