GBP/USD is gaining strength after yesterday’s bloodbath, thanks to another move by the Bank of England.
BoE Govenor Andrew Bailey has hit the ground running, just three days into his new jobs, cutting interest rates by an additional 0.1% and adding £200 million in QE in an attempt to offset the economic impact of the coronavirus outbreak. His move comes following former Governor Mark Carney’s slashing of rates by 50 basis points earlier in the month and as central banks across the globe ramp up their response to the coronavirus impact.
Fears Running High
The BoE’s move is being well received amid depressing news elsewhere. According to an Ipsos MORI survey, UK economic optimism is now at the lowest level since the 2008 financial crisis. Add into the mix news that Londoners are facing an imminent lockdown as the capital is ahead of the curve on coronavirus cases plus concerns over how the UK will afford Sunak’s blowout bailout and it’s easy to see why demand for the pound has been waning. And that is without even mentioning that Chief EU negotiator Michel Barnier has tested positive for coronavirus.
Lockdown In London
A lockdown of London, the hub of foreign exchange trading, is unprecedented territory. The impact that the lockdown of the UK capital will have on the UK economy will be huge. When coronavirus broke out there were serious concerns of the supply shock that could follow. However, what is clear now is that the demand shock that the coronavirus outbreak and a London lockdown will bring will be astonishing.
U.S. Dollar Is King
As with all currency pairs there is rarely one side to the story. The mighty U.S. dollar strength has also been responsible for the collapse of cable to the lowest level since 1985. Demand for the dollar continues to rise despite the Fed’s latest attempt to ease turmoil in money markets.
The U.S. dollar is not rising on improving prospects for the U.S. economy. Quite the opposite. The outlook for the U.S. economy is terrible. The latest U.S. jobless claims report a surge in people who have been laid off in recent days. These are primarily state labour agencies as cities shut down to halt the spread of coronavirus. The data comes a day after Treasury Secretary Steve Mnuchin warned that the U.S. jobless rate could soar to 20%. While usually these figures could see traders dump the buck, instead they are fuelling the safe haven trade.
Levels To Watch
GBP/USD is trading at the top of the day’s trading range, through $1.1700, although the down trend remains intact on the 1-hour chart.
Immediate resistance can be seen at $1.1735 (today’s high) prior to $1.18 (50 sma) a break above this level could negate the short-term bearish trend.
On the downside, support can be seen at $1.1452 (today’s low) prior to psychological levels at $1.14 and $1.1350.
