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Friday, 18 September 12:51 (GMT -05:00)



Foreign exchange market

GBP Prospects After BoE's Interest Rate Decision


The United Kingdom's financial authorities have published the information on its money-and-credit policy:
- The interest rate decision: 0,10% (prediction: 0,10%, previously: 0,10%)
- BoE's MPC: votes for interest rate cuts: 0 (previously: 0)
- BoE's MPC: votes for interest rate hikes: 0 (previously: 0) 
- BoE's MPC: votes for keeping the interest rate unchanged: 9 (previously: 9) 
- BoE's total QE: 725 billion pounds (prediction: 725 billion pounds, previously: 725 billion pounds)
 
Back in early 2020, we used to deal with the BoE's interest rates at 0.75%. Later on, the coronavirus pandemic made the Bank of England start cutting the interest rates in several stages. The first one took place on March 11th, when the central bank cut the interest rates all the way down to 0,25%. The second one took place on March 19th, when it cut the rates further down to 0,10%, where they have been ever since.
 
With that being said, we are witnessing the lowest interest rates in the bank's history. Still, if there is a second wave of the pandemic, or any other kind of global shock, chances are the Bank of England will have to introduce negative interest rates. It's interesting to note that in 1980, the rates were at 17.00%!
 
BoE on Inflation
 
Like any other central bank in the world. the Bank of England is capable of triggering inflation decrease or increase. For that purpose, they can use the short-term interest rate, which is all about the expenses commercial banks carry when borrowing from the central bank. When the interest rate increases, the bank also raise the interest rates for people borrowing from them, which means retail loans get costlier, which in its turn may lead to lower consumption. With that being said, we get decreased demand, followed by slower or even zero price growth, which is essentially a lower or zero inflation rate. On the contrary, a lower short-term interest rate leads to cheaper loans, higher consumption, and higher inflation.
 
GBP/USD Reaction
 
Forex traders can see GBP/USd growing. At this point, it has already grown by 0,1% up to 1.3133. In a broader sense, the bull cycle started in March 2020 and is still underway. At this point, we are dealing with a sequence of increasing highs, which is safe, NordFX experts say.
 
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