Forex Market: GBP/USD trades little changed after BoE leaves monetary policy on hold

The pound traded little changed against the US dollar on Thursday, after Bank of England kept its benchmark interest rate and asset purchase facility program unchanged at its policy meeting today.

GBP/USD hit a session high at 1.6820 at 01:00 GMT, after which the pair trimmed daily gains to trade little changed at 1.6779 at 11:34 GMT, losing 0.09% for the day. Support was likely to be received at April 9th low, 1.6724, while resistance was to be met at February 17th high, 1.6723, also the pairs strongest since November 2009.

The Bank of England Monetary Policy Committee (MPC) left the benchmark interest rate unchanged at a record-low 0.5%, in line with analysts forecasts. The key rate has been at this level since March 2009.

At the same time, the monthly pace of bank’s monetary stimulus was also left intact, at 375 billion GBP per month, in line with market players expectations. The central bank issues new money in order to purchase gilts from private investors such as pension funds and insurance companies.

While BoE Governor Mark Carney has pushed back against market expectations for an imminent interest-rate hike, citing that more slack in the economy should be absorbed before raising borrowing costs, the members of the MPC were divided as to what is the exact amount of spare capacity in the economy.

The interest rate decision “is likely to have been unanimous again,” said Samuel Tombs, a London-based economist at Capital Economics Ltd, who forecast the central bank will keep rates unchanged until late 2015, cited by Bloomberg. “Some of the indicators of spare capacity that are likely to be on the MPC’s dashboard have been flashing red. Nonetheless, other developments are likely to have reassured the MPC that interest rates can remain on hold for a good deal longer.”

The UK trade deficit narrowed to 9.094 billion pounds in February, exceeding analysts’ expectations for a drop to 9.200 billion pounds from 9.793 billion pounds in the previous month, which was the highest since September last year, data by the Office for National Statistics (ONS) showed yesterday.

A separate report by the ONS revealed that the BRC shop-price index plunged 1.7% in March from a year ago, following a 1.4% drop in the previous month. Analysts had projected a 1.5% decline.

“While data has been mixed recently, the glass is more than half full in the case of sterling,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London, cited by Bloomberg. “But from a trading point of view, a lot of good news is already priced in. It will take something large for the pound to appreciate further, such as the Bank of England indicating it might have to raise rates sooner than the market thinks.”

According to estimates by the IMF, the British economy will expand at the fastest pace among developed nations, which provided further support to the pound.

The UK economy will expand 2.9% this year and 2.5% in 2015, IMF reported yesterday in its World Economic Outlook. The International Monetary Fund forecast in January that the nation GDP will grow 2.4% this year and 2.2% in 2015. However, the fund underlined that the recovery of the economy remains uneven and the central bank of the country should continue with its accommodative policy.

Meanwhile, the number of people in the United States, who filed for unemployment assistance for the first time during the week ended on April 5th, probably decreased to 320 000 from 326 000 in the prior week. This is a short-term indicator, reflecting lay-offs in the country. In case the number of initial jobless claims fell more than projected, this would have a bullish effect on the greenback. The Department of Labor is to release the weekly report at 12:30 GMT.

Elsewhere, USD/NOK hit a session low at 5.9178 at 08:19 GMT, after which consolidation followed at 5.9262, losing 0.17% for the day. Support was likely to be found at March 13th low, 5.9122, while resistance was to be met at April 9th high, 5.9782.