As expected, the Bank of England (BoE) met and voted to hold the Bank Rate at 0.50%. The Asset Purchase Program was held at £375 billion. The current environment is not laid out for a rate hike. UK has low inflation and lack of wage growth. There is political risk as Scotland will hold an independence referendum that can break part of the UK. Also, the economic recover that seemed strong in Q1 has faded in Q2, and might not be that strong in Q3. The crisis in Ukraine and the sanctioning of Russia will also be a drag on the economy. A rate hike therefore might shock the system back towards recession.
Mark Carney, Governor of the Bank of England
Here is the official BoE Statement. The minutes to today’s meeting will be released on Wednesday, Sept. 17.
The prospect of the BoE raising rates at the end of 2014 is very low at this point, and the GBP/USD has been sliding because of this as well as recent political risk.
Cable was holding around 1.6450 ahead of the BoE statement. the reaction was bearish afterwards, and continues a downtrend that started in July when price was at the high on the year at 1.7191. Now, in just a matter of 2 months, GBP/USD’s next target will be the 2014-lows in the 1.6250-1.6315 area made in January and early February.
At this point a break above 1.65 will be needed to introduce any consolidation, bullish correction outlook against such a persistent downtrend. Otherwise, 1.63, and 1.62 here we come.
(click to enlarge)
(click to enlarge)
The daily chart does reflect a persistent downtrend since July within a falling channel. As we approach the channel support, and seen the RSI in both the daily and 4H chart dip below 30, we should consider a possible consolidation. We have not had any significant bullish correction to pop above the channel, and I would not expect this until price finds support in the 2014-low area.