GBP/USD drops to lowest since January 2017 ahead of BOE
- GBP/USD fell to 1.21 in Asia, the lowest level since January 2017.
- Bank of England is unlikely to follow the Federal Reserve's rate cut move
GBP/USD slipped to a 31-month low of 1.21 in the Asian session, courtesy of broad-based US Dollar demand.
The American Dollar picked up a bid as the US Federal Reserve cut rates by 25 basis points on Wednesday, but cautioned markets against expecting further easing over the next few months.
Focus on BOE
The Bank of England (BOE) is widely expected to push back against expectations of rate cuts even though the risk of a hard Brexit darkens economic prospects. The central bank's monetary policy committee is expected to vote 9-0 to keep rates on hold at 0.75%.
The Pound will likely pick up a bid if the BOE reiterates the message delivered in May that markets are underestimating the BOE's willingness to raise rates if the economy grew as forecast.
The central bank, however, has little room to sound hawkish with lingering Brexit risks. New Prime Minister Boris Johnson has said that he will take Britain out of the European Union on Oct. 31 without a Brexit deal if Brussels does not rewrite the deal it signed with Theresa May, according to Reuters.
That said, with the GBP already at 2.5-year lows, the BOE would want to avoid sounding too dovish, as that could yield a bigger slide in the British currency, leading to a sharp rise in imported inflation.
All-in-all, the BOE is likely to adopt a more neutral stance.
The GBP/USD pair is currently trading at 1.2128. The key support at 1.1905 could come into play if the US treasury yields rise in response to the not-so-dovish Fed and if BOE's guidance on responding to possible no-deal Brexit is strongly dovish.
Technical levels
Author
Omkar Godbole
FXStreet Contributor
Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.
