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GBP/USD Extends Losses on BoE Easing Expectations and Weak UK Sales

Jignesh Davda

After a strong start to the week GBP/USD, has reversed lower in the second half of the week with several BoE members discussing what the central bank might do next.

Perhaps the most surprising comment this week is from Bank of England’s Governor Andrew Bailey when he said he’s changed his view a bit on negative interest rates.

It was only two weeks ago that Bailey had signaled that other forms of easing were favored and that negative interest rates, while not ruled out, were low on the BoE’s list of preferred easing measures.

Dave Ramsden, Deputy Governor of the Bank of England, was the latest to chime in on the issue. Ramsden reiterated what other BoE members said through the week, that negative interest rates are on the table. Although he added that it is a “very complex issue”.

Ramsden also confirmed that policymakers could ease further as early as the June meeting and added that it has become clear that the economic uptrend won’t be as sharp as the downturn.

Retail sales figures out of the UK weighed on the exchange rate today as the Office for National Statistics reported a record decline of 18.1% in sales for April. Analysts had been looking for a drop of 15.8% after a revised decline of 5.2% in the prior month.

Technical Analysis

GBPUSD 4-Hour Chart

The recovery in GBP/USD this week has been held by an important resistance confluence that falls at 1.266.

The level marks previous support that held the pair higher in late April and then once again in early May.

In addition to the horizontal level, the upper bound of a declining trend channel had come into play to create a resistance confluence.

The downturn in the exchange rate has been aided by a recovery in the dollar that started yesterday. The greenback is benefiting from a decline in risk sentiment with the S&P 500 declining nearly three-quarters of a percent yesterday.

GBP/USD was last seen facing support at 1.2166 which reflects the April low. A breach below it paves the way for a retest of support at 1.2100 which served to hold the pair higher at the start of the week.

Bottom Line

  • GBP/USD is weighed by a stronger dollar, weak retail sales, and further comments from the BoE.
  • The pair was held by a major resistance area this week. As a result, a double top pattern that was activated last week remains intact. It carries a measured move target of 1.1890.

This article was originally posted on FX Empire

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