Talking Points
- The Bank of England cut rates to a record low, lifted QE £60Bln and announced new efforts
- GBP/USD real volume surged to a 15-month high following the BoE decision
- Learn more about incorporating real volume into your strategy here
On Thursday, the Bank of England reduced its main lending rate 25 basis points to a record-low 0.25 percent at its second policy meeting following the Brexit vote. This event was highly anticipated because the markets were pricing in a near 100 percent probability that the central bank would cut rates. What did come as a surprise though was the decision to boost asset purchases from £375 billion to £435 billion and the further announcement of plans for corporate bond purchases as well as a term funding for banks.
In response to the news the British Pound dropped sharply against its major counterparts – between 1.5 and 2.2 percent versus the Euro and Australian Dollar respectively. Just as impressive, real volume on the GBP/USD surged to its highest level since May 2015 (as can be seen on the chart below) a spike that occurred during the UK general election. Changes in volume alongside movements in price can indicate shifting levels of conviction to compliment direction.
Later today, the US will release July’s non-farm payrolls report. In May, the same data caused the US Dollar to decline sharply due to a dismal reading. Then in June, a surge in employment leveraged exactly the opposite reaction for the markets due to a substantial beat in the data. Taking this into consideration, tomorrow’s jobs report could potentially be another source of volatility and volume for GBP/USD.
