BoE Preview: GBPUSD Rate Vulnerable to Dovish Forward Guidance

Trading the News: Bank of England (BoE) Interest Rate Decision

The Bank of England (BoE) interest rate decision may shake up the near-term outlook for GBPUSD if the central bank alter the forward guidance for monetary policy.

The BoE may change its tune as the government under Prime Minister Boris Johnson announces a GBP 2.1B fund to hedge against a disorderly exit from the European Union (EU), and the fresh updates to the quarterly inflation report (QIR) may highlight a weakened outlook for the UK amid the growing threat of a no-deal Brexit.

In response, the Monetary Policy Committee (MPC) may change its tune and highlight a lower trajectory for the benchmark interest rate as “underlying growth in the United Kingdom appears to have weakened slightly in the first half of the year relative to 2018.”

In turn, a batch of dovish comments may keep GBPUSD under pressure, but more of the same from Governor Mark Carney and Co. may curb the recent decline in the Pound Dollar exchange rate if the central bank insists that “an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target.”

Impact that the BoE interest rate decision had on GBP/USD during the last meeting

June 2019 Bank of England (BoE) Interest Rate Decision

GBP/USD 10-Minute Chart

As expected, the Bank of England (BoE) voted unanimously to keep the benchmark interest rate at 0.75% in June, with the central bank reiterating that “an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate” as the central bank anticipates a smooth Brexit.

However, the BoE appears to be changing its tune as “the perceived likelihood of a no-deal Brexit has risen,” and the Monetary Policy Committee (MPC) may adjust the forward guidance over the coming months as “GDP is now expected to be flat in Q2.”

The British Pound struggled to hold its ground following the mixed language, with GBPUSD flopping ahead of the 1.2730 region to close the day at 1.2700. Learn more with the DailyFX Advanced Guide for Trading the News.

GBP/USD Rate Daily Chart

• Keep in mind, the broader outlook for GBP/USD is no longer constructive as the exchange rate snaps the upward trend from late last year after failing to close above the Fibonacci overlap around 1.3310 (100% expansion) to 1.3370 (78.6% expansion).

• The recent series of lower highs and lows keeps the downside targets on the radar for GBPUSD, but need a break/close below the 1.2100 (61.8% expansion) handle to bring the 1.1890 (61.8% expansion) 1.1950 (78.6% expansion) region.

• At the same time, recent developments in the Relative Strength Index (RSI) suggests the bearish momentum is gathering pace as the oscillator holds below 30 and appears to be pushing deeper into oversold territory.

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