As widely anticipated, the Bank of England left interest rates and its Asset Purchase Facility unchanged at its monthly meeting earlier this morning. In typical BOE fashion, the accompanying statement offered little in the way of color, simply reiterating the policy decision. Instead, traders will have to wait for the release of next week’s Quarterly Inflation Report from the Bank; like the Federal Reserve’s Summary of Economic Projections, this document serves as a “super statement” that outlines the members’ longer-term views on inflation, unemployment, economic growth, and interest rates. Lately, the QIR has been a bigger event for the market than the BOE’s actual monetary policy meetings because it allows traders to adjust their expectations for when the central bank will finally look to raise interest rates.
While the BOE’s decision was by no means a surprise, it did remind traders of the monetary policy contrast between the neutral BOE and the mostly dovish central banks across the rest of the world (16 separate central banks have cut interest rates already this year). As a result, the pound is generally maintaining its strength against most major currencies, and GBP/USD has even risen to within striking distance of its 1-month high at 1.5270.
As we noted earlier this week (see “Is GBP/USD Carving Out a Long-Term Base?” below for more), GBP/USD is looking increasingly constructive on a technical basis. The market’s bearish bias from December has clearly evaporated, and if rates can break above the 38.2% Fibonacci retracement of the Dec-Jan drop at 1.5270, it would confirm the rounding bottom pattern and open the door for a potential leg up toward 1.54 or 1.55 next. Looking ahead, the next major event to watch will be tomorrow’s US Non-Farm Payroll report. If this report misses expectations, GBP/USD could burst through the 1.5270 barrier, but even if it comes out solid, GBP/USD buyers may step in to support dips into the 1.5100s.
Source: FOREX.com
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