Thursday brings the highly anticipated Bank of England monetary policy decision. In the run-up to this decision, speculation that the central bank will remain dovish has combined with a persistently strong US dollar to place heavy pressure on GBP/USD. Markets are currently expecting no major changes to interest rates or monetary policy by the BoE on Thursday. Therefore, any hawkish surprises in policy, rhetoric, or Monetary Policy Committee (MPC) votes will very likely make a substantially positive impact on sterling. In the event that the central bank remains as dovish as expected, however, any continued strength in the US dollar could help exacerbate the current GBP/USD slide of the past three weeks.
BoE Governor Mark Carney recently took the opportunity in an interview to lower expectations for an imminent rate hike due to weak data out of the UK. As a result, the pound was hit severely, as previously high expectations for another impending rate increase were greatly diminished. Coupled with the sharp rise in the dollar, the drop in the pound prompted GBP/USD to take a steep dive in subsequent days and weeks. Therefore, as noted, barring any hawkish surprises on Thursday, if the BoE remains as dovish as Carney recently implied, GBP/USD could remain under pressure.
In the handful of trading days running up to the BoE’s Super Thursday, which will also feature the central bank’s pivotal inflation report, GBP/USD has consolidated in a tight range around its 200-day moving average, a critical technical juncture. Prior to this consolidation, the currency pair had fallen precipitously since mid-April, breaking down below multiple key support levels, including a clear uptrend line extending back to early 2017 as well as the important 1.3700-area support. Having currently settled around its key 200-day moving average, as noted, the near-term outlook will rely in large part on the content of the BoE’s Thursday decision. If it is as dovish as expected, GBP/USD has the potential to break below the 200-day moving average, especially if the US dollar remains as well-supported as it has been in recent weeks. The currency pair has not traded significantly below this major moving average since April of 2017. With any such GBP/USD breakdown, the next major downside target resides around the key 1.3300 support area.
Investopedia does not provide individual or customized legal, tax, or investment services. Since each individual’s situation is unique, a qualified professional should be consulted before making financial decisions. Investopedia makes no guarantees as to the accuracy, thoroughness or quality of the information, which is provided on an “AS-IS” and “AS AVAILABLE” basis at User’s sole risk. The information and investment strategies provided by Investopedia are neither comprehensive nor appropriate for every individual. Some of the information is relevant only in Canada or the U.S., and may not be relevant to or compliant with the laws, regulations or other legal requirements of other countries. It is your responsibility to determine whether, how and to what extent your intended use of the information and services will be technically and legally possible in the areas of the world where you intend to use them. You are advised to verify any information before using it for any personal, financial or business purpose. In addition, the opinions and views expressed in any article on Investopedia are solely those of the author(s) of the article and do not reflect the opinions of Investopedia or its management. The website content and services may be modified at any time by us, without advance notice or reason, and Investopedia shall have no obligation to notify you of any corrections or changes to any website content. All content provided by Investopedia, including articles, charts, data, artwork, logos, graphics, photographs, animation, videos, website design and architecture, audio clips and environments (collectively the "Content"), is the property of Investopedia and is protected by national and international copyright laws. Apart from the licensed rights, website users may not reproduce, publish, translate, merge, sell, distribute, modify or create a derivative work of, the Content, or incorporate the Content in any database or other website, in whole or in part. Copyright © 2010 Investopedia US, a division of ValueClick, Inc. All Rights Reserved
Recommended Content
Editors’ Picks
EUR/USD retreats to 1.0700 after US data
EUR/USD lost its traction and turned negative on the day near 1.0700 in the American session on Tuesday. The data from the US showed that Employment Cost Index rose more than expected in Q1 and provided a boost to the USD.
GBP/USD declines toward 1.2500 on renewed USD strength
GBP/USD turned south and dropped toward 1.2500 in the second half of the day. The US Dollar gathers strength following the strong wage inflation data, forcing the pair to stay on the back foot.
Gold extends daily slide toward $2,300 after US data
Gold stays under bearish pressure and declines toward $2,300 on Tuesday. The benchmark 10-year US Treasury bond yield stays in positive territory above 4.6% after US Employment Cost Index data, weighing on XAU/USD.
XRP hovers above $0.51 as Ripple motion to strike new expert materials receives SEC response
Ripple (XRP) trades broadly sideways on Tuesday after closing above $0.51 on Monday as the payment firm’s legal battle against the US Securities and Exchange Commission (SEC) persists.
Eurozone inflation stable as the outlook on prices gets increasingly muddied
Eurozone headline inflation remains stable at 2.4%. With higher energy prices and improving domestic demand, questions about the direction of inflation become louder.