Bank of England Holds Rate, Keeps Bond-Purchase Plan at GBP 200 Billion

Overview
As expected, the Bank of England held its benchmark interest rate at 0.50% and maintained its GBP 200B asset purchase program as the expansion in monetary and fiscal policy continues to feed through the real economy, with policy makers seeking to ensure the economy recovery from the worst recession since the post-war period. At the same time, the central bank stated that the emergency measures will take about another month to complete, while the MPC publicized that the scale of the asset purchase program will stay under review. Meanwhile, board member Kate Barker said she would be “very surprised” if GDP did not rise in the 4th quarter as the central bank sees the economy emerging from the recession. Looking ahead, policy makers will have its inflation and new growth forecasts at its quarter inflation report on February 10.

Forecast
There was little reaction to the data in the GBP/USD after the pair slipped 0.8% on the day, with the yield on two-year gilts down 5 basis points at 1.22%. Going forward, investors speculate that the central bank may shift its policy next month, while raising interest rates in the long-term as economic conditions improve throughout the region. However, as the short and medium-term outlook remains uncertain, household may continue to scale back on spending and increase their temperament to save as policy makers see a risk for a protracted recovery.

Looking at the daily chart, the EURGBP continues to trade within a congested area with a range top at approximately 0.9029 and a range bottom at 0.8855, with the pair currently finding short-term support at the 100-day SMA (0.8989). Thus, a breakout to the upside or downside is evident as this range will not hold, and with a breakout to the upside, along with a possible double bottom the pair may test 0.9127.