BoE Action As London Looks Down The Barrel To A Lock Down

Fiona Cincotta
By :  ,  Senior Market Analyst
GBPUSD is gaining strength after yesterday’s bloodbath, thanks to another move by the BoE. 

Andrew Bailey has hit the ground running, just three days into his new jobs, cutting interest rates by an additional 0.1% and adding £200 million in QE in an attempt to offset the economic impact of coronavirus outbreak. His move comes following former Governor Mark Carney’s slashing of rates by 50 basis points earlier in the month and as central banks across the globe ramp up their response to the coronavirus impact. 

Fears Running High
The BoE’s move is being well received amid depressing news elsewhere. According Ipsos MORI survey UK economic optimism is now at the lowest level since 2008’s financial crisis. Add into the mix news that Londoners are facing an imminent lock down as the capital is ahead of the curve on coronavirus cases plus concerns over how the UK will afford Sunak’s blowout bailout and it’s easy to see why demand for pound has been waning. And that is without even mentioning that Chief EU negotiator Michel Barnier has tested positive for coronavirus.

Lock down London
A lock down of London the hub of foreign exchange trading is unprecedented territory. The impact that the lock down of the UK capital will have on the UK economy will be huge. When coronavirus broke out there were serious concerns of the supply shock that could follow. However, what is clear now is that the demand shock that the coronavirus outbreak and a London lock down will bring will be astonishing.

Dollar Is King
As with all currency pairs there is rarely one side to the story. Mighty dollar strength has also been responsible for the collapse of cable to the lowest level since 1985. Demand for the dollar continues to rise despite the Fed’s latest attempt to ease turmoil in money markets.

The dollar is not rising on improving prospects for the US economy. Quite the opposite. The outlook for the US economy is terrible. The latest US jobless claims report a surge in people who have been laid off in recent days. These are primarily state labour agencies as cities shut down to halt the spread of coronavirus. The data comes a day after Steve Mnuchin Treasury Secretary warned that US jobless rate could soar to 20%. Whilst usually these figures could see traders dump the buck, instead they are fueling the safe haven trade.

Levels to watch
GBP/USD is trading at the top the day’s trading range, through $1.1700, although the down trend remains intact on 1 hour chart.
Immediate resistance can be seen at $1.1735 (today’s high) prior to $1.18 (50 sma) a break above this level could negate the short-term bearish trend.
On the downside support can be seen at $1.1452 (today’s low) prior to psychological levels at $1.14 and $1.1350.

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