GBP/USD Daily Forecast – New BoE Governor Doesn’t See Urgency for Rate Cut

The Federal Reserve felt that the potential damage the Coronavirus might have warranted a larger than usual emergency 50 basis point rate cut earlier this week.

Andrew Bailey, who will be replacing BoE Governor Mark Carney on March 18, said yesterday that more evidence is needed on the Coronavirus before making a policy decision, indicating he did not see the urgency in the same manner the Fed does.

The futures markets continued to price in expectations for a rate cut at the March 26 BoE meeting, although the British pound has managed to break higher from a range on the recent view from the upcoming BoE Governor.

While the bank has indicated it is not likely to make a move ahead of its scheduled meeting, Bailey commented that the BoE has room to move the interest rate down to 0.1% from the current rate of 0.75%, if need be.

In the week thus far, the Reserve Bank of Australia, the Fed, and the Bank of Canada have all reduced their interest rates in response to the Coronavirus outbreak. The Bank of Canada slashed rates by half a percent which was its first rate cut since May 2015.

Technical Analysis

GBP/USD has broken upward from a consolidation that had contained it for the first half of the week. In the process, the pair has scaled above a horizontal level at 1.2850.

The recent price action points to a clear bullish trend over the near-term.

The horizontal level at 1.2850 is now seen as strong support in the session ahead.

Overhead resistance for the pair is seen at 1.2961 which is a level that has been well-respected since October. Further, the 200 moving average on a 4-hour chart is converging toward the level to create a resistance confluence. This indicator served to hold the pair lower on two recoveries last month.

Bottom Line

• GBP/USD has broken higher from a range after the Bank of England said it did not see the urgency in a rate cut.
• The pair has reversed into a bullish near-term trend. Resistance at 1.2961 is important, a break of it can signal that a broader recovery is taking place.