GBP/USD darts lower after dovish BOE interest rate decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jun 24, 2021
  • The GBP/USD retreated after the relatively dovish statement by the Fed.
  • The bank left interest rate and quantitative easing unchanged.
  • It expects to keep buying assets until August this year.

The GBP/USD nosedived after the relatively dovish policy statement by the Bank of England (BOE). The pair dropped to 1.3900, which was relatively lower than this week’s high of 1.4000.

GBP/USD
GBP/USD chart

BOE decision

The BOE concluded its June meeting on Thursday and published a relatively dovish statement. The bank decided to leave its main interest rate unchanged at 0.10%. The tone was dovish because the BOE did not talk about bringing the end of the 875 billion QE program nearer as some analysts were expecting. The bank said:

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“The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”

The BOE has been relatively dovish this year. For example, the bank ruled out pushing interest rates to the negative zone in its February meeting. Members, including Governor Andrew Bailey, had hinted that the bank would implement sub-zero rates this year. The change of mind happened as the UK government ramped up its vaccination drive and after the EU and UK reached a Brexit agreement.

Recent economic numbers have been relatively strong. UK inflation has risen to 2.1%, above the BOE target of 2.0%. The bank expects that this trend will continue and peak at 2.5%. Retail sales have also been strong even after they dipped in May. Similarly, data by Markit showed that the UK manufacturing and services PMIs did relatively well in June. The unemployment rate has also dropped to 4.8% while house prices have surged.

As a result, analysts expect that the UK economy will have a better recovery than the US and EU. They expect the economy to jump by 7% this year, the best performance in decades.

Meanwhile, the GBP/USD pair will next react to the latest US GDP data that will come out on Thursday. The numbers are expected to show that the economy expanded by 6.4% in Q1.

GBP/USD technical analysis

GBP/USD
GBP/USD chart

The GBP/USD erased some of the gains made this week after the pair crashed to 1.3785 on Friday last week. On the 4H chart, the pair declined below the 50% retracement level and below the 50-period and 25-period EMA. The decline came after the pair formed what looks like a bearish flag pattern. Therefore, while the downward trend is likely to continue, we can’t rule out a situation where the pair resumes the upward trend. This will be confirmed if it manages to retest this week’s high of 1.400.

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