The Bank of England (BoE) has recently come under fire for its slow response to the significant decline in UK price growth. Official data has revealed a sharp drop in consumer price growth from 6.7% in September to 3.9% in November, catching many by surprise. This sudden decrease in price growth has triggered market reactions, leading investors to speculate that the BoE will start easing its monetary policy sooner than anticipated. However, critics argue that the BoE is being too cautious and may be waiting too long to make adjustments.
Even though core inflation and services price growth have also shown lower readings, the BoE’s Monetary Policy Committee has maintained its readiness to raise rates above 5.25%. However, analysts and investors are skeptical of this approach and believe the timing might be off. The market is already factoring in a quarter-point cut by May, with a projected total cut of 1.38 percentage points in 2024. This indicates a lack of confidence in the BoE’s current strategy.
The BoE’s cautious stance can be attributed to potential risks, such as disruptions in shipping due to geopolitical events. While it is essential to consider these risks, critics argue that waiting too long to pivot on monetary policy can have adverse effects. By delaying necessary adjustments, the BoE risks exacerbating the decline in price growth and hampering the overall economic recovery.
Turning to currency analysis, the GBPUSD pair is approaching a drop-base-rally demand zone, as indicated by the chart. This demand zone is further supported by multiple factors, including trendline support, the 200-day moving average support, 88% Fibonacci retracement level, and overall bullish market structure. Based on this analysis, there is an expectation of a bullish movement in GBPUSD.
In terms of EURGBP, the bullish rally has continued for three consecutive weeks. However, it is crucial to question when this momentum will come to an end. By assessing the chart, we can identify a likely target for the bullish momentum, which is a supply zone coinciding with the intersection of two resistance trendlines and the formation of a potential head-and-shoulder pattern. Consequently, there is a belief that a bearish reaction may occur once price reaches this supply zone.
For GBPCHF, the bearish momentum initiated by a rejection and head-and-shoulder pattern from the 100-day moving average resistance appears to be ongoing. There is an expectation that GBPCHF will create a new lower low. However, it is essential to note that this is merely an opinion, and the ultimate outcome will be determined by price action.
Trading CFDs always carries a certain degree of risk. Therefore, proper risk management is vital for success. It is crucial to conduct thorough research, exercise due diligence, and manage risks appropriately to avoid costly mistakes while exploring trading opportunities. By understanding market dynamics and making informed decisions, traders can navigate the uncertainties and increase their chances of achieving positive outcomes.