GBP price, Brexit news and analysis:
- The chances of a quarter-point rate cut to 0.5% by the Bank of England are evenly balanced, with the market-implied probability of a reduction at 53.3%.
- Either way, GBP/USD is now in a well-defined downtrend meaning that, from a technical perspective, it is likely to weaken further once the initial volatility has subsided.
GBP/USD at risk of further losses
Traders in Sterling need to keep a close eye this session on the interest rate decision by the Bank of England’s monetary policy committee, due at 1200 GMT. Judging by the overnight index swaps market, the probability of a quarter-point cut in UK Bank Rate to 0.5% is 53.3%, just above the 46.7% for no change.
This means volatility in GBP is likely immediately after the decision but, as the chart below shows, GBP/USD has been trending lower for the past week, suggesting that once the dust settles it will most likely resume its decline.
GBP/USD Price Chart, One-Hour Timeframe (January 24 – 30, 2020)
Chart by IG (You can click on it for a larger image)
A rate cut had been widely expected due to UK economic weakness but the latest purchasing managers’ indexes were more positive, with the manufacturing PMI rising in January to its highest since April last year and the services PMI to its highest since September 2018.
( 11:01 GMT )
Recommended by Martin Essex, MSTA
Live Data Coverage: Bank of England Rate Decision
At the last meeting chaired by Mark Carney, this improvement will therefore have to be weighed against a possible global economic downturn caused by the coronavirus and uncertainty about the course of the EU-UK trade talks once Brexit takes place tomorrow, Friday, at 2300 GMT.
The BoE will also have looked at its staff’s growth and inflation forecasts, to be revealed in the latest quarterly Inflation Report, and the decision is unlikely to be unanimous either way. This will mean that any forward guidance from the Bank will be particularly important, with a “hawkish cut” or a “dovish hold” both possible.
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— Written by Martin Essex, Analyst and Editor
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