Yesterday, the Bank of England (BoE) announced its interest rate decision. Market participants were not surprised by the result of the meeting, the rate was kept at 4.75%. However, another fact was quite surprising for the market as 7 board members were expected to vote in favor of keeping the rate unchanged, and the other 2 were expected to vote for cutting it. In fact, the rate cut was supported by 3 board members and this makes the outlook for policy easing in the near term more pronounced.
There are a number of objective factors for this easing of conditions.
Firstly, the UK now has the highest interest rate among the G7 countries. And this makes the economy less attractive for investment in the real sector because of the relatively high cost compared to other countries. In other words, capital is flowing from the UK economy to other countries' stock markets with higher rates of return on capital.
Secondly, with relatively high interest rates inflation in the country is rather low (2.3%). For example, with the same level of inflation the rate in the eurozone is 3.15%.
Thirdly, the UK has the lowest economic growth rate among the G10 countries. Higher interest rates are further slowing down an already low-growth economy.
Therefore, the reasons for cutting rates are long overdue and the Bank of England may need to accelerate policy easing.
From a technical point of view, GBPUSD is now at the support level of 1.2480 and the pair aims to test the level of 1.2300. Probably, this will not happen immediately, and GBPUSD will correct upwards to 1.2600 first. However, the main target will be 1.2300.
The overall recommendation is to sell GBPUSD.
Profits should be taken at the level of 1.2300. A Stop loss could be set at the level of 1.2700.
The volume of the opened position should be set in such a way that the value of a possible loss, fixed with the help of a protective Stop loss order, is no more than 1% of your deposit funds.
This content is for informational purposes only and is not intended to be investing advice.