Sterling continues to be in freefall as BOE warns of no-deal Brexit

The US dollar continued to rally after the Federal Reserve delivered its interest rates decision. The bank slashed interest rates by 25 basis points, which was expected. Officials said that the cut was meant to caution the US economy from the adverse implications of the weakness in Europe and Asia. They blamed the uncertainties on trade for this. The bank also said that quantitative tightening will stop today, two months ahead of schedule. Investors were disappointed because the guidance did not appear to show that the Fed was beginning an easing cycle.

The sterling declined today after the BOE delivered its interest rates decision. As expected, the bank left interest rates unchanged at 0.75%. The vote to leave rates at that level was unanimous. The bank also warned against the idea of the country leaving the EU without a deal. If that happens, the bank said that there was 1 in 3 chances that the country will go into a recession. It also warned that the sterling will drop a lot and inflation would rise. This would mean a rate hike to deal with inflation. Boris Johnson has said that while he prefers making a deal with the EU, but the country will leave with or without it on October 31st. 

Today, a number of countries released a number of key economic data. In Australia, data from AIG showed that the manufacturing index increased from 49.4 to 51.3. In China, the Caixin manufacturing PMI rose to 49.9, which was higher than the previous 49.4. In Sweden, the manufacturing PMI remained unchanged at 52.0 while in Germany, it increased from 43.1 to 43.2. In the UK, the manufacturing PMI remained unchanged at 48.0. In the US, the initial jobless claims increased by 215k while the continuing jobless claims increased to 1.699M. Later today, ISM will release the manufacturing PMI data from the US.

EUR/USD

The EUR/USD pair continued to drop, reaching a low of 1.1025, which was the lowest level since 2017. On the daily chart, the pair is trading below the 25-day and 50-day moving averages. The RSI has dropped to the oversold level of 30 while the momentum indicator has remained below 100. The pair will likely continue moving lower to test the 1.1000 level, which is an important support.

GBP/USD

The GBP/USD pair continued moving lower, reaching a low of 1.2083, which is the lowest level since 2017. On the four-hour chart, the pair is trading below all the short and long-term moving averages. The price is also between the lower and middle lines of the Bollinger Bands while the RSI has remained slightly below the oversold level of 30. The pair will likely continue moving lower as the demand for the UK pound eases.

AUD/USD

The AUD/USD pair declined yesterday after the Fed interest rates decision. In the Asian session, the pair rose slightly after the better-than-expected PMI data from the UK. The upward momentum waned and the pair is heading towards yesterday’s lows. On the four-hour chart below, the pair is trading below the 25-day and 50-day moving averages. The 14-day RSI has moved to the oversold level of 30 while the pair is trading along the lower line of the Bollinger Bands. The pair will likely continue moving lower to test the important support of below 0.6800.