Drops to Two Month Low Below 1.28 as BOE Prepares Banks
The last couple of weeks have seen the GBPUSD drop sharply down to its lowest levels in two months below 1.28 after pressuring the key level around 1.32. Now that it has fallen so sharply through support around 1.30, it may find it difficult to regain that lost ground and get back above 1.3050. This level may provide some resistance again. Just before this recent fall, the GBPUSD had enjoyed a couple of solid weeks rising sharply back to the resistance at the key 1.3250 level before being sold off again. 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) has been working with financial institutions to ensure they are prepared for any market chaos caused by a messy Brexit next March. BOE Deputy Governor Sam Woods said that banks in Britain must hold enough cash to withstand any disorderly Brexit hitting financial markets next March. Even if there is no exit deal between London and Brussels, Woods wants to make sure that Britain’s departure from the European Union (EU) is as smooth as possible for markets.“Just in case things go badly we have been working with firms to ensure they have in place liquidity sufficient to accommodate a severe dislocation in financial markets,” Woods told an audience of bankers at the annual City of London dinner.“We all need to be ready for a range of outcomes. We encourage all firms to opt into the regime because it will provide certainty until March 2022, independent of the existence and duration of any wider implementation period,” Woods said. Britain is legislating to allow banks and insurers in the EU to continue serving UK customers after Brexit.“This is a straightforward, common sense way of lowering the risk of disruption to the City of London,” said Woods.