The Bank of England convenes for its June monetary policy meeting this week and with the UK economy shown to be suffering greatly as a result of the COVID-19 lockdowns, the bank is widely expected to announce further measures. With rates sitting at record lows of 0.10%, the market is placing the greater odds on an additional QE announcement. BOE governor Bailey confirmed that the bank has been discussing the prospect of negative rates, marking the first time that such discussions have occurred in the UK, but given that the pandemic, and the economic fallout from it, is far from over the market is not expecting a rates adjustment at this stage.
UK GDP Crashed in April
Since the first stimulus measures were announced in March, at the height of the COVID-19 crisis, the BOE has announced £645 billion in QE, including £210 billion in bond purchases. With UK GDP seen falling to -20.4% in April, marking historical lows, the need for further economic support is clearly urgent. The BOE itself has forecast that the country is facing the deepest economic contraction in three hundred years and as great swathes of the economy remain closed for business, the recovery still has a great deal of road ahead.
The government announced further easing of the UK’s lockdown restrictions this week as all non-essential retailers were given the greenlight to reopen. This comes after a campaign of pressure from the chancellor and the business secretary who have both urged the Prime Minister to start reopening the economy or risk facing even greater recessionary activity. However, despite the reopening which came into effect as of Monday June 15th, many sectors remain closed such as hospitality, entertainment, leisure and beauty, meaning that the recovery in activity over this month will be limited.
Expectations For This Meeting
The market is now anticipating a further £100 billion in asset purchases to be announced at this month’s meeting, which would take the total size of the bank’s program to £745 billion. Given that an announcement within this region is widely expected here, the impact on the bound will likely not be too pronounced. However, should Bailey take the market by surprise and announce a larger addition, this could help pull GBP lower and support UK asset prices. In contrast, a smaller than expected announcement, or an unchanged decision across the board, would likely see GBP rally in response with UK equities moving lower.
Technical Views
GBPJPY (Bullish above 133.65)
From a technical viewpoint. GBPJPY continues to trade higher within the bullish channel which has framed the recovery off 2020 lows. Following a correction lower from the yearly pivot at 140, price has retested VWAP and support at 133.65, which is holding for now, keeping the near-term bias bullish with the focus on a move back up to retest the 140 level.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!