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The British Pound Look Vulnerable, Here is Why

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The British Pound has been under pressure after comments from the Central Bank. Traders are now wondering if the bank really means what the Governor has said and it the answer to that question is yes, what does that really mean for the Sterling?

Bank Of England’s Dovish Comments

The Governor of the Bank of England, Andrew Bailey made some bold comments recently during which he hinted that the bank’s monetary policy is going to be a lot more dovish as compared to their previous stance. The exact words that the Bank of England’s governor, Andew Bailey used were “more aggressive “. These two particulars got the blood flowing among bears who have been looking at the strength of the Sterling in the past weeks and thinking that the rise in prices wasn’t sustainable as the policy difference between the Fed and the bank of England began to broaden significantly.

Remember, that the Fed has cut the interest rate by 50 basis points, the moment it came out of its rate hiking cycle which was introduced to tame inflation. And now the expectations are that the bank will cut the interest rates again and most think that the next interest rate cut is going to be another 50 basis points and if it is not going to be another 50 basis points, it is very much given that the Fed will cut the interest rates by at least 25 basis points in every single meeting for the rest of the year.

Pressure on Bank of England

If we look closely at the UK’s economic situation, one would see that consumers are still very much struggling as disposable income has shrunk by most in many decades and this is mostly because of higher interest rates. Although, the official employment number does show stability but on ground it is incredibly difficult for jobless individuals to secure a role due to lack of confidence among entrepreneurs.

So, the pressure is very much on the bank of England to do what is needed the most and that is to cut the rates aggressively . Speculators believe that the next interest rate cut by the Bank of England will be 50 basis points as it is well behind the curve and its current policy is very much choking the growth. However, smart money has a different view which is that it is true that the Bank of England is under pressure but it is under no obligation to cut interest rates by 50 basis points in its each meeting. Although, there are probabilities that we will see a rate cut in their every meeting for the remaining of the year.

What Does This Mean for Sterling

If we focus on the GBP-USD pair, it would seem that the path of the least resistance may remain skewed to the upside which means that the dollar may experience more weakness than the pound. The below chart shows important price levels to watch. It also indicates potential entry and exit points for trading opportunities.

Traders should keep a close eye on upcoming economic data releases and central bank meetings for any clues on future interest rate decisions. A rate cut by the Bank of England could potentially weaken the pound further against the dollar. However, if the Federal Reserve decides to cut rates as well, the impact on the GBP-USD pair may be less pronounced. It is important for traders to stay informed and adapt their strategies accordingly in order to capitalize on potential trading opportunities.

GBPUSD chart by HowToTrade.com

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