All Eyes on The BOE

Expectations of further monetary policy easing from the Bank of England have ballooned in the wake of the new UK lockdown. The PM announced over the weekend that the country will be placed back into a nationwide lockdown as of November 5th (pending a parliamentary vote this week) due to last until December 2nd initially. While the news had been well signalled ahead of the announcement due to the leaking of the government’s plans, the decision itself comes as something of a shock given that Johnson had, even up until recently, claimed that there would be no return to a nationwide lockdown.

Johnson announced the new restrictions in response to the latest findings from the government’s SAGE group which predicts that at the current trajectory, UK deaths will surpass those seen during wave one. Johnson has been criticised by political opposition for not enacting a shorter “circuit breaker” lockdown in September when SAGE first recommended the action. However, Johnson argued that the decision to move the country back into lockdown is not an easy one to make and has outlined his fears over the economic impact.

Over recent weeks, the daily death toll has risen from as low as 11 to highs of 367 seen last week. Speaking in parliament, Johnson said: “The modelling presented by our scientists suggests that without action we could see up to twice as many deaths over the winter as we saw in the first wave. Faced with these latest figures, there is no alternative but to take further action at a national level.”

Big Economic Risk From Fresh Lockdown

The major concern now is the impact the new lock-down will have on the economy. The recovery had already been slowing and fears over job losses this winter were mounting ahead of this new action. With a further month of nationwide lock-down, the BOE is expected to announce fresh easing action when it meets on Thursday. The BOE has recently said that it will continue to provide support as necessary and cited the uncertainty regarding the past of the pandemic as the major risk factor in its outlook. Now, with a fresh lockdown taking effect this week, the market is expecting that the BOE will step up its asset purchase program. There are clear dovish risks heading into the meeting, however. The BOE has been discussing the use of negative rate a great deal recently, even writing to regional banks to understand how it would impact them, and in light of the conditions, such a move might now become a reality.

Technical Views

GBPUSD

From a technical viewpoint. Following the failed retest of the broken bullish channel, GBPUSD has traded lower from the 1.3191 level and is now retesting the broken bearish trend line from 2020 highs. Below here, the next key support is at the 1.249 level. While price holds above here, the near term bias remains bullish. However, a break below there would turn attention to the 1.2649 level next.

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