The Bank of England has not raised its rate. How low will the pound fall?

By 08/11/2021News

Gold 1818,205

EURUSD 1,1567

DJIA 36172,01

OIL.WTI 81,20

DAX 16033,50

The long-awaited Bank of England meeting last week turned out to be a disappointment for the pound. The interest rate was not raised: out of nine members of the Monetary Policy Committee only two voted for a tightening. In this backdrop, the GBP/USD pair lost more than two pips by the end of the week. How low can sterling fall now?



The possibility of a rate hike by the Bank of England was raised in mid-October. Central bank governor Andrew Bailey said that the rapidly rising inflation rate might require drastic measures.
Since then the GBP/USD pair has risen by almost two figures on expectations: from values near 1.3600 to the area above 1.3800.
However, many realised that Andrew Bailey would find it difficult to persuade Monetary Policy Committee members to agree to a rate hike in November. The economic recovery still looks rather shaky and the labour market has not yet returned to pre-pandemic levels.
For example, Silvana Tenreiro, as well as other central bankers who voted against a rise, said that the employment situation must continue to be monitored. On 30 September, the furlough programme, which was in place during the pandemic, ended and it is still too little time to see how this will affect the labour market.
As for inflation, it is now mainly caused by rising energy prices. The situation is very similar to what happened in 2008 and 2011. Most likely, as before, this will not lead to a sustained increase in the consumer price index.
As a result, market expectations did not come true on 4 November and the pound collapsed. GBP/USD fell almost to the September lows in the area of 1.3400. The main question on the table now is: how long can the weakening last?
From a fundamental point of view, the collapse in sterling was caused by disappointment after unreasonable expectations. This is a typical news reaction. And given that there is a chance of a rate hike in December, there may not be any further GBP/USD fall.
From the technical point of view, there is a strong support (mirror level) near the lows of September 30 (area of 1.3400). And if it holds, the pair may move to recovery.
But, in case of breakdown of 1.3400 and fixation under it, the next southward target for GBP/USD could be the area of 1.3100.

07.45 Swiss unemployment rate for October
11.00 Eurogroup meeting

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.