GBP price, UK interest rates and analysis:
- The Bank of England has left its benchmark UK Bank Rate at 0.75%.
- But there could still be further losses for GBP/USD as attention turns to Brexit tomorrow, Friday, and the start of EU-UK trade talks during the so-called transition period up to the end of 2020.
GBP/USD at risk of further losses
GBP/USD and the GBP crosses rose Thursday after a 7-2 decision by the Bank of England’s monetary policy committee (MPC) to leave its benchmark Bank Rate at 0.75%. Its purchases of government bonds were left at £435 billion and of corporate bonds at £10 billion.
Prior to the decision, the market-implied probability of a reduction was close to 50% meaning an even split between those who were expecting a reduction and those seeing no change.
However, the move is unlikely to boost Sterling long-term and it could well extend its recent losses ahead of and perhaps after Brexit at 2300 GMT Friday. Eyes will then turn to the EU-UK trade talks during the so-called transition period that will last until the end of 2020.
GBP/USD Price Chart, One-Minute Timeframe (January 30, 2020)
Chart by IG (You can click on it for a larger image)
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As explained here, a rate cut had previously been widely expected due to UK economic weakness but the latest purchasing managers’ indexes were more positive, with the manufacturing PMI rising in January to its highest since April last year and the services PMI to its highest since September 2018. However, the MPC will have weighed this improvement against a possible global economic downturn caused by the coronavirus and uncertainty about the course of the EU-UK trade talks once Brexit takes place.
Today’s was the last meeting chaired by Mark Carney, who will speak at a press conference today at 1230 GMT when he will explain the decision and perhaps offer some more guidance on the future course of monetary policy. Carney will be followed as BoE Governor by Andrew Bailey on March 17, just ahead of the next MPC meeting that ends on March 26.
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In its quarterly Monetary Policy Report, the Bank hinted that a rate cut could still be on the agenda, saying that “policy may need to reinforce the expected recovery in UK GDP growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak.”
Its latest forecasts see inflation staying below the BoE’s 2% target over the next three years if rates stay at 0.75%. BoE forecasts based on market expectations of a cut in rates to 0.5% this year show inflation rising slightly above target.
We look at Sterling regularly in the DailyFX Trading Global Markets Decoded podcasts that you can find here on Apple or wherever you go for your podcasts
— Written by Martin Essex, Analyst and Editor
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