The Bank of England (BoE) became the 4th major central bank after the Fed, RBA and BoC to deliver a rate cut. The emergency 50 bps rate cut by the BoE takes the UK interest rate to 0.25%; a move which was decided in a unanimous vote. The difference between this move and that of the other banks (especially the Bank of Canada), is that the BoE also introduced several stimulus measures for small businesses to help them survive the impact of the coronavirus outbreak. The coronavirus is spreading in the UK, and the new case and fatality counts are rising.
The rate cut precedes the budget presentation by the Chancellor of the Exchequer. Markets are hoping for a budget that delivers increased spending after years of cutbacks. The BoE has introduced a funding window of £100bn in cheap credit to help small and medium-sized enterprises in the UK. Increase in lending will also be promoted through a cut in capital buffers to 0% over 1 year.
The move is helping push the GBPCAD up, and the pair is now trading at 1.77815.
The outlook for the GBPCAD is bullish. This is because the CAD is also suffering from an additional pressurizing fundamental: the steep drop in crude oil prices. Brent crude has recovered to $35.77 per barrel after falling off the cliff in antipodean fashion to $30.31 at the start of the week.
The GBPCAD is now pushing against the resistance level formed by highs of the weekly candles of May 2017, June 2018 and March 2019. With the budget now in focus, the GBPCAD may get some propulsion from a budget that promotes higher spending to boost the economy, which is heading into a post-Brexit phase. This may be enough to send the GBPCAD towards the 1.82334 resistance target, with 1.8568 expected to be the next upside target in the medium-term.
If the markets are disappointed with what the budget has to offer, the GBPCAD may stall at the current resistance, which may prompt some selling towards the 1.77698 support level (previous highs of Aug/Sept 2016 and Jan 2019). Further support comes in at 1.75385.