Trading strategy: BoE cut interest rates

Trading strategy: BoE cut interest rates

Ending the regular policy meeting on 04th of August, Bank of England (BoE) announced lower interest rates from 0.5% to 0.25%. This decision was adopted by all 9 members of Monetary Policy Committee (MPC) and this is the first time this agency changed interest rates since March 2009. Along with lower interest rates, BoE announced a program of pumping large-scale money into the economy.

Also during this meeting, BoE cut the forecast for UK economic growth strongly since beginning this prediction in 1993. Accordingly, BoE cut its forecast for UK economic growth in 2017 to 0.8 % from 2.3% given in May. The forecast growth this year is unchanged at 2% by GDP of the first half of the year increased sharply over the previous forecast. BOE also forecasts that the unemployment rate would rise to 5.4% in the following year and 5.6% in 2018.

The interest rates cut of BoE has been predicted by the analyst, however, restarting the asset purchase program makes the market unexpected. The pound has depreciated 1.5% against the dollar after BoE's statement. At a press conference later, Governor Mark Carney said MPC launched these measures because the economic outlook has changed dramatically.

Governor Mark Carney also said the majority of MPC members supported adding a further cut of interest rates as well as the further implementation of other measures to stimulate if the data shows that the economy deteriorated. However, many analysts believe that BoE is likely to wait for several months to assess the impact of current measures for the economy before continuing other actions, and the market does not expect the next strong decline of GBP.

The attention of the market today focuses on employment report announced by US Labor Department. Analysts forecast, in July, US economy added only 180,000 new jobs after creating an additional 287,000 jobs in June and the unemployment rate fell from 4.9% to 4.8%. US dollar will be supported if job growth will be at around 200,000 and the unemployment rate and wage growth will be positive as expected. In the case of disappointing jobs data, the dollar will be under pressure big discount.

GBP/USD SELL: 1.3180; TARGET: 1.3020; STOP-LOSS: 1.3240

Xuan Nguyen

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