GBP/USD Daily Forecast – Sterling Recovers From Multi-Decade Lows

The Bank of England further cut its interest rates to a record 0.1% as part of an emergency action on Thursday to combat the negative consequences on the economy as a result of the Coronavirus. The bank also committed to purchasing an additional 200 billion pounds worth of government and corporate bonds.

The rate cut follows a larger than usual 50 basis point cut last week which was also delivered outside of a regularly scheduled meeting.

Prime Minister Boris Johnson said in a news conference yesterday that he was confident the UK can turn the tide of Coronavirus spread within 12 weeks. However, when pressed, he admitted he could not say for certain when things would end.

Earlier this week, the government asked citizens to work from home when possible and avoid public transport as well as pubs and restaurants.

Technical Analysis

Despite a pullback in the dollar in the early day, the greenback continues to dominate the FX markets this week. The trade-weighted dollar index (DXY) tested a major resistance level at 103.00 yesterday which served to trigger a notable reversal in 2016.

If DXY were to scale above the level, it would effectively be trading at highs not seen since 2004. In light of the rise in the dollar, some analysts are speculating that there will be some form of intervention to stop the rapid rise.

In the week thus far, the dollar has advanced against all of the major currencies. The British pound has pared back a bulk of losses since the US session yesterday but continues to show a loss of about 2.5% for the week thus far.

While Sterling is seeing a bit of a reprieve, the GBP/USD pair continues to remain at risk, especially if the dollar makes a bullish break above the mentioned resistance level.

Yesterday’s break above 1.1628 resistance has set a near-term bullish tone. The level remains critical support in the session ahead. The next level of interest to the upside is the psychological 1.2000 handle.

Bottom Line

• GBP/USD is recovering higher after falling to multi-decade lows this week as the UK steps up its efforts in battling the Coronavirus.
• The dollar is dangerously close to breakout levels and traders should pay close attention to the 103.00 resistance level in DXY.