GBPUSD

09:56, 17 October

Eases Below Resistance at 1.32 as BOE Considers Climate Risk

The last couple of weeks have seen the GBPUSD rise sharply back above resistance at the key 1.32 level before being sold off yet again back below this level. This has resulted in the GBPUSD moving back within the range between 1.3050 and 1.32 which it has established over the last month after previously falling sharply from a two month high just shy of 1.33. Over the last month, the 1.3050 level has become significant by repelling the sterling on several occasions and more recently propping up the currency. Around mid-August, the GBPUSD also rallied well which saw it regain lost ground from a 15 month low below 1.27, before reversing strongly again at 1.3050.

 

Throughout July the GBPUSD was content to trade in a very small range right around the 1.31 level. It was also feeling some selling pressure from the resistance level at 1.32. The 1.30 level that provided strong support to the GBPUSD and was a key level throughout 2017 seems to have lost its significance as the 1.3050 is more relevant presently. Throughout most of May, the GBPUSD dropped dramatically from the resistance level around 1.43 down to the 1.32 level. The 1.36 level provided some resistance to the sterling in the last nine months or so and providing a little bit of support, except the GBPUSD continued lower through this level.

Earlier this year we were looking at the resistance level at 1.43 looming like a dark cloud in the distance ready to strike. Several times this year the resistance around that level stood firm and sellers jumped all over the GBPUSD forcing it down to several lows. Interestingly, despite all the aggressive selling, it wasn’t so long ago the GBPUSD hit a two year high above 1.43.

The Bank of England (BOE) will encourage financial institutions to manage climate risks better, with the release of formal recommendations detailing how banks and insurers should identify a senior executive for managing climate-related risks. Banks and insurance companies will be required to appoint a senior manager to take responsibility for protection from climate change risks under the new plans. The central bank’s prudential regulation authority (PRA) has laid out guidelines to ensure firms have a “credible plan or policies in place for managing exposures” for climate change. In a statement, the BOE said: “Climate change and society’s response to it presents financial risks that are relevant to the PRA’s objectives of safety and soundness. Whilst these risks may crystallise in full over longer-time horizons, they are becoming apparent now. Firms are enhancing their approaches to managing these risks, but more need to take a forward-looking, strategic approach if financial risks are to be minimised.”Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), said: “Climate change presents a disruptive and potentially irreversible threat to the planet. The impact of climate change on financial markets is uncertain but legal frameworks – at a global, European and UK level – have already begun to adapt to reflect a move to a low-carbon economy.”