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Governor of the BoE says the negative rate to be one of the tools and will take actions when necessary

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Governor of the BoE says the negative rate to be one of the tools and will take actions when necessary
Independent Analyst: Zhen QuanXi


2020.8.10- Independent Analyst: Zhen Quan XiOn Thursday, August 6, the Bank of England announces the latest monetary policy decisions, keeping the ultra-low interest rate and the huge bond purchase plan previously formulated unchanged. The BoE also said that the unemployment rate will increase rapidly by the end of the year and the UK stock market will therefore fall accordingly.

The Monetary Policy Committee of the BoE voted unanimously today to “hold still” and maintain Bank Rate at 0.1% and the bond-buying stimulus programme with the scale of 745 billion pounds remained unchanged. The committee also stated in the announcement later on that “employment appears to have fallen since the Covid-19 outbreak, although this has been very significantly mitigated by the extensive take-up of support from temporary government schemes,” , also“surveys indicate that many workers have already returned to work from furlough, but considerable uncertainty remains about the prospects for employment after those support schemes unwind.”

“In the near term, the unemployment rate is projected to rise materially, to around 7.5% by the end of the year.”

In the inflation report of each quarter, the economists of the BoE said that “the labor market will continue to suffer, the unemployment rate might gradually decrease after reaching its peak in the four quarter.”

Due to the layoffs of many companies and the closure of the shops and entities, the British economy has been suffered seriously. With the government’s salary subsidy plan, the current unemployment rate is 3.9%.

The BoE predicted that the UK economy may not get back to its pre-Covid size at the end of 2021. The BoE in May expected the recovery will by “the second half of 2021”.

The BoE said that the economic decline of the second quarter was less severe than expected on the inflation report released in May.

About the future monetary policy, the BoE stated “is now considering” negative interest rates. The committee will continue to review the negative interest policy and all the policy tools.

Bank of America is even bearish on the future GBP exchange rate: whether is from a political or policy perspective, the decision may strengthen the bearish outlook for the GBP to the end of the year.

The Governor of the Bank of England mentioned in different occasions earlier that various monetary means will be carried out to push the British economy back on track, which is actually the QE without bottom line.

The ‘strength’ of the GBP currently is only the result of the sharp decline of the US dollar. The UK now needs to face complicated international relationships including the international political or economic disputes with China, Russia, the EU and even the United States, especially on the digital tax. If the UK fails on the digital taxation with the United States, it will inevitably face the US tariff retaliation, which will severely damage the already fragile British economy.

Bank of America is even bearish on the future exchange rate of the pound: no matter from a political or policy perspective, the resolution could strengthen the Pound and has a bearish outlook for several months to the end of the year.

Therefore, the analysis of the Bank of America is not baseless. Implementing a weak monetary policy is also one of the strategies of the Bank of England.

Trading Tactic:
Pay attention to the GBPUSD each weak highest point wave or weak rebound after fell down, it is an excellent opportunity to sell on high position. After profiting, stop loss can be pushed forward to track higher profits. If stop loss is reached, you can also pay attention to every weak rising wave, continue to sell on high positions to strive for greater profits.

It is suggested that this sell position can be long-term hold positions. When the downtrend is determined, you can pay attention to every wave of weak rising rebound after a drop around 150 points. You can increase the sell position and keep holding those position.

Expected Target:
For the mid-term target close to (1.2723)
For the mid long-term target close to (1.2443),
For the long-term target close to (1.2223).


This article also covered in the Guo Ji Ri Bao newspaper issued on August 10, 2020.