British Pound turns higher across the board, and the EURGBP moves lower after the Bank of England (BOE) kept interest rates unchanged at 0.10% and its quantitative easing program also unchanged.
Some analysts were looking for more easing to be announced as we discussed yesterday in our analysis “GBPUSD Hits Daily Lows Ahead Of The Bank of England Policy Decision”. Two MPC members Jonathan Haskell and Michael Saunders voted to increase support beyond the £645bn of asset purchases for the economy by increasing the QE program.
Bank of England sees UK GDP falling 14%
A Bank of England illustrative scenario sees UK GDP falling 14% in 2020 and 25% decline in the Q2, and the jobless rate hitting 8%. The scenario for the interest rates is for 0.10% through 2021. The central bank also expects the GDP to reach its pre-COVID levels in the Q2 of 2021 and growing by 3% in 2022.
Bank of England said that the CPI would fall below the 2% target during the Q2 of this year, mainly reflecting the weakness of demand and added: “The MPC will continue to monitor the situation closely and, consistent with its remit, stands ready to take further action as necessary to support the economy and ensure a sustained return of inflation to the 2% target.”
Andrew Bailey, the Bank of England governor, said: “The UK economy and financial system are robust to a period of social distancing that extends through the summer and is phased out by September and to a number of sensitivities either side of that.”
I expect the central bank to increase the QE in the upcoming policy meeting as the risk for the economy tilted to the downside as the coronavirus lockdown persists. In the interest rates, the bank has entered a wait and see stance. Bank of England cut the interest rates twice in 2020 from 0.75% to 0.10% and increased the QE up to 645 billion.
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EURGBP Price Support and Resistance
EURGBP is 0.11% lower at 0.8728, reaching the daily lows after the Bank of England policy announcement. In the hourly chart, the news pushed the pair below the major hourly moving averages. On the daily chart, the pair looks indecisive around the 200-day moving average. After the correction from 11-year highs the pair has formed a strong base at 0.8680 while on the upside has capped by the 50-day moving average the last month. The outlook is neutral at current levels and patient traders could wait for a credible break below the 100-day MA or a break above the 50-day moving average to initiate a trade.
On the downside, first support for EURGBP stands at 0.8708 the daily low. A move below might test the next critical support zone at 0.8682 the low from April 17 trading session. More bids for the pair might emerge at 0.8650 the 100-day moving average.
On the contrary, the first resistance stands at 0.8767 the daily high. A move above might challenge the next resistance at 0.8836 the 50-day moving average. If EURGBP break above 0.8836 then might test the next supply zone at 0.8864 the high from April 21.