GBPUSD Sheds Over 1% as BOE Governor Bailey Hinted That Negative Rates Could Be Possible
Yesterday, GBPUSD led losses among the major currencies after the BOE rate statement. The currency pair finished the day 131 pips or over 1.05% below its opening price at 1.2424.
Initially, the currency pair traded higher when the central bank kept its interest rates steady at 0.10%. The BOE also raised the amount of its asset purchases by 100 billion GBP to 745 billion GBP. However, market participants did not seem to mind this because it was already widely expected. GBPUSD rose to 1.2548 after the decision from where it was trading at 2496.
It was not until the press conference that GBPUSD slid aggressively lower. BOE Governor Bailey may have hinted that negative rates are being discussed as an option by the central bank. He said that the decision to implement them are not yet imminent. However, he did warn that while the “evidence suggests economic downturn has not been as severe as in May scenario but let’s not get carried away.” With these remarks, investors took it to mean that negative rates could still be a possibility in the future.
On the hourly time frame, it can be seen that GBPUSD has spent the last few trading hours in consolidating. Because this follows after a sharp drop, a bearish flag has formed. When you enroll in our free forex trading course, you will learn that this is considered as a bearish continuation pattern. A strong close below yesterday’s low at 1.2400 could mean that GBPUSD still has downside potential. It may soon then fall to support at 1.2181 where it bottomed on May 25.
Alternatively, it’s worth pointing out that the currency pair is still testing support at the 200 SMA on the 4-hour time frame. If the currency pair is unable to close below the indicator, it could mean that there are still buyers in the market. With this, we could soon see GBPUSD trade higher to 1.2547 where it may test the 100 SMA for resistance. If that price does not hold, the next ceiling could be at 1.2685 where the currency pair topped on June 16.More content