The GBPUSD will come into focus tomorrow as the Bank of England prepares to release its latest monetary policy rate and statement. It will also release its monetary policy report. The Bank of England (BoE) is not expected to make any adjustments to the interest rate. However, downward revisions to the GDP as well as the CPI could make a case for a rate cut in 2020.
This month’s MPC meeting of the BoE comes at a particular awkward time for the UK politically. Brexit proceedings have brought about a lot of political drama. The outlook for the UK economy as it leaves the Eurozone and the outcome of the December 12 vote are still a bit cloudy. The UK economy therefore finds itself entering uncharted waters in 2020, making the job of the Bank of England a difficult one indeed.
With the markets expecting a rate hold tomorrow, emphasis will shift to the contents of the monetary policy report and the rate statement. The key areas of focus will be:
- 2020 growth forecasts for the UK economy. Many central banks have had to revise their previous forecasts downwards as concerns for a global economic slowdown continue to mount.
- The UK jobs market and wage growth. Brexit has had downside risks to the UK employment market. What will the further lack of new investment mean for the UK jobs market, at a time when purchasing managers’ indices for manufacturing and services are starting to show an increase in redundancies? How does the BoE respond to the job market contraction?
The upcoming UK elections and further Brexit-related headlines may dominate GBPUSD price action. Therefore, the pair may have a muted response to the numbers. The BoE seems content to wait until the elections and the Brexit pathway are fully defined before taking some form of action.
Technical Outlook for GBPUSD
The recent rally in the GBPUSD seems to have stalled. The election outcome could be the catalyst for further upside moves. Presently, the GBPUSD is locked in a symmetrical triangle on the daily chart and is trading at 1.2868; down 30 pips on the day.
The usual technical outcome for this pattern is for the GBPUSD to break to the upside, which produces a measured move that targets 1.31735 (previous high of May 5) in the first instance.
However, there is very little to push the GBPUSD to the upside, so we may see this triangle acting as a topping pattern. In this case, 1.27484 (cluster of highs between June 5 and June 28) and 1.25878 (July and September 20 highs) could serve as the next downside targets if price decisively breaks below the triangle.