GBPUSD
The GBPUSD experienced a round of choppy movement and ended up trading slightly lower on the day as the Bank of England (BoE) opted to leave interest rates and the asset purchasing facility unchanged at 0.75% and 435billion pounds respectively. The MPC voting pattern for both decisions also met market expectations with no surprises, as board members voted 0-2-7 (2 for rate cut, 7 for rate hold) and 0-0-9 (unanimous vote) respectively.
The focus thus shifted to the rate statement, in which the BoE cut its Q4 forecast for UK GDP to +0.1%, down from September’s forecast of +0.2% to reflect the recent downbeat economic data from the UK. The bank also noted the “additional support to the outlook” provided by the de-escalation of the US-China trade feud, but added that the weakening of labour market conditions in the UK was a headwind to the UK economy.
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The latest consumer inflation data released Wednesday came in at +1.5%, but a fall in the core CPI effectively led to an annualized fall in the CPI from 1.4% to 1.1%. This leaves the UK consumer inflation below the BoE’s 2% target. The MPC stated today that it could adjust monetary policy in either direction according to changes in the economic outlook so as to ensure that this 2% target is met.
This statement could indicate that the BoE may be forced into dovish action if inflation consistently stays below 2% well into 2020. The fact that 2 MPC members have advocated for a 25bps cut in 2 successive meeting speaks volumes. Perhaps the bank is waiting for more data to gauge the impact of the recent election and new policies concerning Brexit to see what impact these will have on the UK economy before acting.
Meantime, the GBPUSD has formed a doji on the daily chart but bearish bias remains. A drop towards the immediate support at 1.2993 (price ceiling of the range of October 17 to December 3) cannot be ruled out. Below this level, further support lies at 1.24434 (previous lows of Oct 24 and Nov 8).
On the flip side, price recovery from present price of 1.3074 could target 1.3175 as the immediate upside target, with 1.3319 lurking overhead.