BOE On Hold

At the Bank of England's February meeting, held yesterday, the central bank opted to keep its headline monetary policy unchanged at current levels. The British Pound was bolstered by a more optimistic tone from the BOE though some dovish guidance remained.

Vaccination Optimism

In the near term, the BOE cited ongoing downside risks from the pandemic, with the UK economy forecast to contract by 4.2% over Q1 as a result of the nationwide lockdowns in place. However, the BOE is now focusing on the strong progress being made within the government's vaccination drive which it believes will allow for the economy to "recover rapidly" this year. The BOE chief hailed the positive momentum in vaccinations as "excellent news" adding that the bank thinks "that is going to support a sustained recovery throughout the rest of the year".

Risks Remain

However, the BOE was keen to stress that downside risks still remains and uncertainty within the bank's outlook remains a challenge. Unemployment is forecast to still peak at 7.8% this year, having risen to 5% at the last count. Additionally. the need for social restrictions to remain in place over the year, along with the threat of further outbreaks as a result of new strains of the virus, mean that the BOE retains a cautious outlook.

BOE Warns Negative Rates Still A Possibility

With this in mind, the BOE has warned regional streets to prepare for the eventuality that negative rates will be used in the UK. The issue of negative rates has been a major focus over recent months. While the BOE said that negative rates are not guarantee it warned that it cannot rule such actions out and as such, regional banks should be aware of the possibility.

In all, it was a more positive meeting than many were expecting and GBP has been well bid on the back of it. With lockdown currently due to run until the end of March at which point the government projects that its vaccination programme will be developed enough to allow for easing of restrictions, the BOE looks set to remain in wait-and-see mode for now.

Technical Views

GBPUSD

GBPUSD continues to trade within the block of consolidation which has formed under the 1.3747 level. While price holds above the 1.3516 support, the near term focus remains bullish, in line with the broader bull channel. Above 1.3747 the next level to watch is the 1.3989 level.

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