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British Pound Outlook: Bank of England and Covid-19 will Drive GBP Price Action

British Pound Outlook: Bank of England and Covid-19 will Drive GBP Price Action

Nick Cawley, Strategist

British Pound (GBP) Price, Analysis and Charts:

  • Bank of England rate decision and quarterly MPC report due Thursday.
  • Covid-19 infection rate is dropping sharply but fatalities remain high.

This Thursday the Bank of England will announce its latest monetary policy decision and release its quarterly MPC report. The BoE is expected to leave all policy measures untouched, but the quarterly report should be monitored closely for the latest look at the health of the UK economy. The central bank may also update the market on how they perceive negative interest rates and if there is any reason to use them in the months ahead. The MPC will also give its latest views on inflation and how covid-19 is affecting the UK economy.

The UK covid-19 data shows both strong progress in the country’s vaccination program and a worryingly high fatality rate. The UK has now administered in excess of 7.5 million first jabs, over 11% of the population, and around 500k second jabs as the government’s program continue to show strong results. Unfortunately, there have been over 100k fatalities since the virus took hold, one of the highest numbers in the world. It is hoped that as the inoculation program progresses, the infection rate and the mortality rate will drop sharply, allowing the government to open up the UK economy.

The success of the UK’s inoculation program, however, has drawn it, and Astra Zeneca, into a high-profile spat with the European Union who is demanding that Astra Zeneca divert some of the UK’s vaccine to the EU who have had their supply levels cut back. This ongoing disagreement, played out still against the Brexit backdrop, could cause further frictions between the EU and UK or disrupt the UK’s vaccine supply, neither a positive for Sterling.

Technical vs Fundamental Analysis in Foreign Exchange

Last week we noted that GBP/USD has been working a ‘two steps forward, one step back’ pattern for the last few months and this continued this week. The pair traded at their highest level since April 2018, just, and remain comfortably constrained in a bullish, upward channel. The next level of note to the upside would be horizontal resistance at 1.4377, although this may take a few weeks to play out.

GBP/USD Weekly Price Chart (August 2015 – January 22, 2021)

British Pound Outlook: Bank of England and Covid-19 will Drive GBP Price Action

Retail trader data show 41.41% of traders are net-long with the ratio of traders short to long at 1.41 to 1.We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

Traders of all levels and abilities will find something to help them make more informed decisions in the new and improved DailyFX Trading Education Centre

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

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