The British pound at the start of the European session dipped against the US dollar below the levels of $1.29 after the Bank of England surprised the markets by cutting the borrowing costs by 50 basis points in order to counter the coronavirus crisis. The cut was already anticipated but it came faster than expected in which could provide a room for upside rally for the Cable. The GBP/USD initially tumbled below 1.29 and hit 1.2827 but recovered swiftly and for good reasons.
After the double dose of rate cuts from the US federal reserve first and now the Bank of England, the British pound is not suffering and for many good reasons. After the latest surprise by the federal reserve by unscheduled rate cut, the bank of England has followed with its own rate and placing it at a historic low.
The fact that BOE officials stated that they are ready to act in face of the COVID-19 crisis, but this move was anticipated as the bond markets had already foreseen monetary stimulus and priced this move in. This is considered as good move for the pound. Other more reasons why the pound could rally upwards is the plans for stimulating the economy by lending schemes for the medium and small business that got affected by the virus. More than 100 billion pound will be provided for these businesses in order to withstand the economic horrors of the virus.
In addition, while the bank announced its decision outside the economic colander, coming just hours before UK annual government budget release. The government its on course to provide an increase its spending in order to fulfill the Prime minster infrastructure promises and to mitigate the fallout of this virus crisis.
From the dollar side, the cable recovery came after Donald trump failed to appear to the white house press conference about US fiscal stimulus. US markets rallied after reports that the us is preparing substantial tax cuts and another fiscal stimulus. However, the stocks fell down after trump not showing. Resulting on investors rushing back to bonds weighing on the dollar negatively.
The Coronavirus has already caused the fatality of more than 4000 people globally with increase in active cases topping 110000. Large gathering has been canceled and travel restrictions are imposed everywhere.
On the technical side the GBP/USD on the 1-hour chart has managed to recapture the 20 Moving average at $1.2935 and marginally below the 50 moving average and currently trading above the support level $1.2886. initial resistance awaits at $1.3000 where it played a major role in past 2 weeks in deciding both directions. Technical indicators are signaling bullish signals on both the 1 hours and the 4-hour chart. however, prices are trading below the 38% Fibonacci level and if broken, we may see the pair rally up towards the next resistance level at $1.3090