Today the focus turns to the Bank of England and its monetary policy decision. While no changes are expected the BoE is preparing to take a significant step into the debate on whether negative interest rates should be used to stimulate the U.K. economy. While negative interest rates are used to spur an economic recovery, the mere possibility of such a step should be negative for the respective currency. Economists expect the central bank to embrace negative rates as a tool but stop short of implementing them for now. According to a survey, most economists expect the key rate to remain at or above the current 0.1 percent through the middle of 2023 but BoE policy makers may indicate that further rate cuts are feasible.
In a nutshell, if Governor Andrew Bailey downplays the need for negative rates the pound will rise. If, however, Bailey indicates that the U.K. needs more help from the BoE, sparking speculation about negative rates the pound will fall.
The BoE rate decision is scheduled for 12:00 UTC.
Let’s take a brief look at the technical picture in the GBP/USD:
We see the pound testing the lower bound of its recent sideways trading range. A break below 1.36 could invigorate fresh bearish momentum but it will depend on the BoE whether a downside break remains sustained. In case of dovish commentary, a next lower target will be at 1.3520. For a bullish breakout, traders may pay attention to prices above 1.3670 that motivate sterling bulls for another test of 1.3750.
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