How to trade GBPUSD ahead and after BOE interest rate decision

The GBPUSD pair is little changed today as investors wait patiently for the Bank of England (BOE) interest rate decision. The pair is trading at 1.2535, which is about 15 basis points below the close yesterday. Let us look at the key information to look out for in Andrew Bailey’s statement.

Interest rates unchanged

The BOE was quick to lower interest rates when the pandemic started. The rates have moved from the previous 0.75% to the current 0.1%. In this meeting, analysts believe that the bank will leave interest rates unchanged.

Still, they will be watching for the bank’s statement on negative interest rates. In a testimony to parliament last month, the governor said that the bank was doing a study on these rates and how they will affect the economy.

By implementing negative rates, the BOE will not be alone. Its counterpart in the eurozone has already brought rates negative. The same is true with the Bank of Japan and Swiss National Bank (SNB).

More quantitative easing?

As part of the coronavirus response, the BOE decided to initiate a new round of quantitative easing with a cap at £645 billion. Today, most analysts expect that the bank will add more funds to this QE. The amount ranges between £100 billion and £200 billion. A significantly higher QE will surprise investors and possibly push the GBPUSD pair lower.

Remember, the BOE decision is coming a day after data from the ONS showed that inflation fell to the lowest level in six years in May.

Economic forecast

Finally, analysts will be watching at the BOE forecast. In the past meeting, the members said that they expect that the economy will weaken by 14% this year driven by a 25% decline in the second quarter. They also expect the unemployment rate to jump to 8% in 2020 7% in 2021, and 4% in 2022. I expect that the bank will lower the projection because of the recent weak data from the UK. An upgrade could be positive for the GBPUSD pair.

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GBPUSD technical outlook

The daily chart shows that the GBPUSD pair is in the third day of losses. These losses have been capped at the 100-day exponential moving average and a few pips above the 50% Fibonacci retracement level. Also, the chart shows that the pair is forming a small head and shoulders pattern.

At this stage, there are two key levels to watch. A hawkish BOE could se the price move above 1.2812, the highest point on June 10. On the other hand, a dovish BOE could see the price move below the 50% retracement at 1.2468.

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