The Bank of England (BoE) rate meeting on June 18 is approaching fast, and investors and traders alike are anticipating a £100 billion boost to the bank’s quantitative easing program. The moves come as the BoE tries to support the UK economy, and as they are quickly spending the money pledged earlier this year.
In March they lowered their interest rate to 0.1%, as the country headed for a lockdown. The results of the lockdown was a 20.4% drop in GDP in April from March levels. The decline is the largest drop seen in the UK on record. The deterioration in the economy is even higher than the slide seen in the 2008 to 2009 financial crisis.
QE’s Effect on GBP
A boost of £100 billion might not have any effect on the GBPUSD as it is the priced-in scenario. However, a more significant increase might see the GBP gain slightly, as the EURUSD did on June 4, when the ECB opted to add 600 billion Euros, vs the 500 billion expected. The EURUSD rose on the higher than anticipated QE, as it lowered the risk-premium in the Euro. Maybe the same will happen if BoE adds more than expected.
However, it is a fine-line, if they add too much QE the GBP should trade lower. Also, there have been talks about negative interest rates. No one thinks that they will be implemented at this month’s meeting. But if the bank hints about it, then the traditional response would be a lower Pound Sterling.
From a technical point of view, the GBPUSD pair remained short-term bullish at the time of writing, on June 12. The price trend was upwards above the June 2 low of 1.2483. The next resistance level, and likewise targets of bullish traders is the June 10 high of 1.2810, followed by the March 10 high of 1.3112. However, a break to the June 2 low, would end the short-term uptrend, and the price might slide towards the May 18 low.
GBPUSD Daily Chart
Written by Alejandro Zambrano, Chief Market Strategist at ATFX UK.
Legal: ATFX is a trading name of AT Global Markets Limited (ATGM, registration number 24226 IBC 2017). ATGM is an International Business Company in Saint Vincent and the Grenadines. Registered address is : The Financial Services Centre, Stoney Ground, Kingstown, St.Vincent & the Grenadines.