- The GBP/USD experienced a substantial decline during Thursday's trading session, driven by the Bank of England's unexpected decision to maintain its existing monetary policy stance.
- This surprising move has raised concerns about the pound's future, particularly if market apprehensions persist.
- The central bank's choice to refrain from raising interest rates, despite widespread expectations to the contrary, caught many market participants off guard.
This currency pair has been on a downtrend for a considerable period, and the breach of the critical 1.2350 level has heightened the possibility of further depreciation, potentially targeting the 1.20 level. In the current market environment, rallies are viewed as opportunities to sell, and any signs of weakness are met with selling pressure. While a temporary bounce towards the 1.2350 level may be preferable, traders must work with the available market conditions.
A decisive break above the 1.24 level could ignite discussions about a potential move toward the 200-Day Exponential Moving Average. However, the likelihood of such an event currently appears slim, unless unexpected developments emerge from the United States. The decision by both central banks to maintain their positions has introduced an element of shock, underscoring the uncertainty surrounding British economic sentiment. This will be an issue that traders will be talking about for some time.
Traders are Gravitating Toward the USD
Given the prevailing market dynamics, it seems prudent to consider the appeal of "cheap US dollars," as traders increasingly seek exposure to the greenback. Rising interest rates in the United States have significant implications for the currency markets, enhancing the attractiveness of the US dollar. Should we witness a breakdown below the session's low on Thursday, the pace of the pound's decline could potentially accelerate.
In summary, the British pound faced a substantial decline driven by the unexpected Bank of England decision. With the currency pair entrenched in a downward trajectory, the 1.20 level is now a plausible target. Selling on rallies remains the favored approach, although a temporary bounce is not out of the question. While the possibility of reaching the 200-day EMA exists, it is currently overshadowed by prevailing market sentiment. Traders are increasingly gravitating towards the US dollar, given the continued rise in US interest rates, highlighting its prominence in currency markets. A breakdown below Thursday's low could potentially expedite the pound's descent.
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