Bank of England pessimism pushes pound down

06 may 2022 71
Volkov_Anton
Volkov_Anton

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Before the Bank of England meeting yesterday, the GBPCAD pair was already at its minimum since August 2019. But after the announcement of the meeting results the downward movement just speeded up, sending the GBPCAD even lower - to the levels of January 2017, below 1.58. The British pound clearly needs more support, otherwise the renewal of record lows of pound value in relation to other world currencies will continue. 


The English regulator, according to the expectations, raised the key rate by 0.25% to 1%. Meanwhile, 3 out of 9 officials voted for raising the rate by 0.5% to 1.25%. But it didn’t affect the market participants, who were actively selling off the British currency.


That’s the thing about the updated forecasts of the Bank of England. Inflation expectations for this year have been raised up from 5.75% to 10.25% at once (which is the maximum for 42 years). Obviously, with the price increase like that, the key rate of 1%, or 1.25%, or even 2.5% (the level expected to be reached by the middle of 2023) is unable to stop the deterioration of quality of life in the country.


Besides the inflation, the Gross domestic product forecasts were also reconsidered. The English regulator stood out by its significant pessimism here as well: in the 4th quarter of this year the decline in GDP is expected, as well as a result of the whole year 2023 (- 0.25%, while initially an increase by 1.25% was expected).


The situation is extremely complicated: the raise of the key rate would lead to the shift of economy into a recession. If the monetary policy isn’t tightened, the inflation will accelerate. And traders with their active selling off the pound (including the GBPCAD pair) indicate a high probability of failure for the Bank of England to have a cake and eat it too.


A state of economy in Canada is significantly better, considering extremely high prices on oil, gas and other resources exported by the country. In addition, the Labour Force Survey is about to be published today, which might further strengthen the Canadian currency.


The nearest target of lowering for the GBPCAD - the minimum of January 2017 at the level of 1.5734. The medium-term target - the minimum of 2013 at the level of 1.5242.



The following trading option might be offered:


Sell GBPCAD in the range of 1.58 - 1.588. Take profit – 1,5734. Stop loss – 1,5925.


Traders also can use at their own will a Trailing stop instead of a fixated Stop loss if the price goes down.

Volkov_Anton
Volkov_Anton

Listed among the best MarketCheese authors
1st in the segments "Currencies" and "Agricultural commodities"
2nd in the segments "Indices" and "US stocks"
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