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Sterling (GBP) on the Ropes after Dovish BoE Rate Talk

Sterling (GBP) on the Ropes after Dovish BoE Rate Talk

2019-09-27 08:57:00
Nick Cawley, Strategist

Brexit and Sterling (GBP) News, Charts and Analysis

  • Sterling shifts lower on BoE interest rate hint.
  • US dollar strength continues to drive moves.

Q3 2019 GBP Forecasts and Top Trading Opportunities

Bank of England MPC Member Highlights UK Economic Weakness.

A member of the Bank of England’s Monetary Policy Committee, Michael Saunders, warned in a speech today that the UK economy ‘has weakened markedly in recent quarters, opening up a modest amount of spare capacity’ and that a loosening of monetary policy may be appropriate. Saunders added that ‘even assuming that the UK avoids a no-deal Brexit, persistently high Brexit uncertainties seem likely to continue to depress UK growth below potential for some time, especially if global growth remains disappointing’.

Bank of England – Shifting Balance of Risks

The shift in rhetoric from Saunders - a noted hawk - sent Sterling lower with the likelihood of lower interest rates on the horizon undercutting the already weak currency. Brexit talks, while ongoing, have yet to produce any positive news as the clock ticks down to the European Council meeting on October 17-18. This meeting is likely the last chance for the EU and UK to come to an agreement over the Withdrawal Agreement and if this deadline passes either the UK will leave with no deal, or the EU will have to grant an extension, if the UK asks for one.

Brexit Glossary: Brexit Jargon and Terms Explained

The recent break and close below the 1.2382 support level has cast a bearish shadow on GBPUSD. The pair have also broken below the 20-day moving for the first time in three-weeks and currently target the 50-day moving average at 1.2252. GBPUSD is becoming increasingly difficult to trade with as the October 31 Brexit deadline nears with volatile moves sparked by rumor and counter-rumor as the Brexit debate heats up. GBPSUD is also being pressured lower by a robust US dollar which is trading near its strongest level since mid-2017. A strong dollar, continued Brexit volatility combined with hawkish BoE talk will make it difficult for GBPUSD to move higher.

GBPUSD Price Daily Chart (January – September 27, 2019)

Sterling (GBP) on the Ropes after Dovish BoE Rate Talk

The IG Client Sentiment Indicator shows retail traders are 68.0% net-long GBPUSD, a bearish contrarian bias.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on Sterling (GBP) – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.