BoE: Optimistic message to lift GBP/USD above 1.32

The Bank of England (BoE) has left its policy unchanged, without dissent toward negative rates. Growth forecasts have been substantially upgraded while officials are content with positive high-frequency figures. In the meantime, GBP/USD has hit 1.3183, the highest since March, showing that the BoE’s decision includes powerful punches, propelling the pound, FXStreet’s analyst Yohay Elam briefs.

Key quotes

“All nine members of the Monetary Policy Committee voted to leave interest rates unchanged. The specter of sub-zero borrowing costs previously weighed on sterling. Andrew Bailey, Governor of the BoE, said that such a move is ‘under active consideration’ but then hinted it is not imminent. The fresh unanimous vote seems to put the nail in the coffin of negative rates, which would have weighed heavily on the pound.”

“The British economy is still set to contract in 2020 – COVID-19 is taking its toll. Nevertheless, this decline has now been trimmed to single digits – 9.5% against 14% beforehand. That is a substantial upgrade. While the BoE also trimmed growth forecasts for the next two years – a slower recovery – it is hard to foresee too far into the future given the high uncertainty surrounding the virus.”

“The ‘Old Lady’ is getting up to speed with high-frequency figures and states that higher frequency indicators imply a rebound in spending. That sentiment echoes the words of Chief Economist Andy Haldane, who said ‘so far, so V’ when talking about the recovery. The BoE is wary of new outbreaks but seems to opt for the glass half full.”

“GBP/USD has hit a daily peak of 1.3183 – the highest since March – before consolidating its gains. Cable may continue higher after the BoE’s upbeat message, potentially breaking above 1.32, thus reaching levels that were last seen in February. The next significant moves depend on the disease – which remains the boss.”

 

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