Daily Market Recap - GBPUSD on the move again

The British Pound is rallying against the US Dollar on Tuesday after the Bank of England Governor Andrew Bailey said that he saw many issues with negative rates. The comments helped overturn speculation that the central bank was on the verge of issuing a rate cut towards 0 percent. The GBPUSD is now trading up over 1 percent at the time of writing and looks set to make a test of the 1,37 handle.

Sterling broke through the 1.36 with ease after finding solid support at yesterdays closing rate of 1.35102. Investors in previous sessions had started to increase bets on the BoE taking on a rate cut at the next policy meeting in February, sending the pair down steadily over 4 consecutive days of losses.

Pound traders are now paring back rate cut bets on the basis of Governor Baileys comments. Goldman Sachs currency analysts have now set the odds of no change in interest rate levels at 4 to 1, sending a strong buy signal in the market. The resulting action made the GBPUSD the highest mover in the major FX space on Tuesday.

After the Brexit trade was reached, many investors began shifting their focus to the outlook of the UK economy. With the return to lockdown restrictions came a souring of the mood amongst traders on the prospects of a speedy recovery. Monetary policy analysts suggested that the UK would follow the ECBs benchmark rate of -0.5 percent to help support the ailing economy.

That said, Britain‘s banking sector would be the hardest hit by a move into negative rates which would drastically reduce the banks’ profitability. The BoE is likely seeing this as a risk too high to take and instead will look into alternatives ways to help the UK economy from a monetary policy standpoint.

From a technical perspective, the GBPUSD has cleared the way for a push at the 1.37 mark, barring any change in attitude by the BoE in the coming sessions. The pair will likely face strong resistance at that point, but should buyers manage to take firm control, a move towards the 1.40 mark remains a strong possibility.

(Chart Source: Tradingview 12.01.2021)

Price action around the 1.37 resistance level will help guide investors‘ decisions in the near term. The flipside scenario will see the GBPUSD trade lower back towards the 1.35 level, crossing over the immediate support at yesterday’s high of 1.35669.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.