Sterling falls after a dovish BOE statement
European stocks and American futures rose today as the Chinese commerce ministry moved to reassure markets about trade. The ministry said that the two top negotiators had agreed in principle to remove the existing tariffs in phases. The ministry did not cite the tariffs that will be removed. This news came a day after sources told Reuters that a deal between the United States and China was going to be delayed. The two countries have been in a trade war that has upended the world trading system. The war has led to lower growth in China, the United States, and in other countries.
The euro declined and then pared some of these losses earlier today. This happened as the European Union slashed growth forecasts for the year. The commission expects the economy to grow by 1.1% this year and 1.2% in the coming year. This growth is lower than the previous guidance of 1.2% and 1.5%. The union attributed this to the ongoing trade war between the United States and China. The announcement by the European Commission came two weeks after the ECB delivered its interest rates decision. The bank left rates unchanged and recommitted starting quantitative easing. It has made one 10-basis point rate cut this year. Europe is also facing a challenge on Brexit but fears of a no-deal Brexit have eased slightly in recent weeks.
The sterling declined after the Bank of England released its monetary policy decision. As was widely expected, the bank left interest rates unchanged at 0.75%. It also said that it would maintain the stock of non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves at 10 billion pounds. The main reason why the sterling declined was the statement that the bank would be ready to intervene if weakness continues - “If global growth fails to stabilise or if Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected recovery in UK GDP growth and inflation”.
The EUR/USD pair declined to an intraday low of 1.1055, which was slightly below the 61.8% Fibonacci Retracement level. It then pared some of these losses and is now trading at 1.1088. On the hourly chart, this price is slightly below the middle line of the Bollinger Bands. The RSI has moved from the oversold level of 30 to the current 45. The pair may resume the downward trend as it tries to test the 50% Fibonacci level of 1.1025.
The XAU/USD pair dropped today after the news on trade. The pair declined from a high of 1492 to 1484. On the hourly chart, the pair is attempting to test the previous low of 1480. The 14-day and 28-day moving averages have made a bearish crossover while the RSI has moved to below the oversold level of 30. The momentum indicator has reversed and is now below 100. In the short-term, the pair may move to test the previous support of 1480.
The GBP/USD pair declined sharply to an intraday low of 1.2810. This was the lowest level since October 29. On the hourly chart, the pair is trading below the 14-day and 28-day moving averages. The RSI has dropped to the oversold level of 30. The lowest point today was along important support. Therefore, if the pair breaks this support, the next potential point to watch will be the important support of 1.2800.