As markets expected, the Bank of England (BoE) introduced a range of additional monetary policy measures and upgraded its growth and inflation forecasts at its August meeting on Thursday amid Britain's decision to leave the European Union. All nine members of the Monetary Policy Committee voted anonymously to cut the main lending rate to a record low 0.25% from 0.50%. Furthermore, the central bank expanded its quantitative easing (QE) programme to 435 billion pound from 375 billion pound, while markets expected the BoE to leave its QE scheme unchanged. Three of nine policymakers voted unanimously against the decision.
The latest batch of surveys showed that the UK economy contracted at its steepest pace and may even slip into recession following the Brexit vote, however, the BoE kept its 2016 economic growth forecast unchanged at 2.0%, as the UK economy had a stronger than expected performance in the first half of the year. Nevertheless, the central bank lowered its 2017 growth forecast to 0.8% from an earlier estimate of 2.3%, while the 2018 estimates were slashed to 1.8%. Moreover, the BoE increased its 2018-2019 inflation forecast to 2.4% amid weakness in the Sterling.
UK Manufacturing Production and US Non-Farm Productivity
GBP/USD continues to edge lower
Not much has changed during the last 24 hours, meaning that the near-term outlook for the Cable remains bearish. The pair is still expected to fall towards the 1.28 major level, where the weekly S1 coincides with the July low and the descending channel's support line. However, the exchange rate is unlikely to reach this area today, with the main support still being the cluster around 1.2960, represented by the weekly S1 and the Bollinger band. Meanwhile, technical indicators retain their mixed signals in the daily timeframe, while being bearish in the weekly one.
Daily chart
Hourly chart
Still no consensus
Market sentiment remains close to equilibrium, as only 55% of all open positions are long today, compared to 51% on Monday. The share of sell orders barely changed as well, having fallen from 63 to 62%.
Indecision appears to be widespread, as the same neutral sentiment is observed among the traders of other brokers. At OANDA, 56% of positions are long and 44% are short. The bullish sentiment is also prevailing at Saxo Bank, where the numbers of longs and shorts take up 54% and 46% of the market, respectively.
Spreads (avg, pip) / Trading volume / Volatility
Majority sees GBP/USD below 1.30 in three months
More than half of traders (51%) believe the British currency is to cost 1.30 or more dollars after a three-month period. The most popular price interval, however, was selected by 19% of the voters, namely the 1.24-1.26, while the second most popular choices imply that the Sterling is to cost either between 1.28 and 1.30 dollars or between 1.34 and 1.36 dollars in three months, both chosen by 13% of the surveyed. At the same time, the mean forecast for Nov 09 is 1.3163.