GBP/USD Forecast: Sterling Settles In Lower 1.2900s After BoE Implied Volatility

• The GBP/USD is trading little changed on the downside at around 1.2930 as the currency pair is trapped in a corrective move lower ahead of the UK Prime Minister Theresa May meeting Irish counterpart in Dublin.
• Meeting with the European Union officials saw only unconvincing headlines on talks being “robust but constructive” coming out.
• The Bank of England held the monetary policy unchanged in line with the expectations while raising the warning about Brexit uncertainty negative effects, but Governor Carney opted for a calm tone that finally supported Sterling.

The GBP/USD is trading little changed on the downside at around 1.2930 on Friday after the Bank of England slashed the short-term growth forecast for the UK while keeping the monetary policy on hold in line with the market expectations. While the initial currency reaction saw Sterling dropping to 1.2850, the GBP/USD recovered strongly to 1.2990 thereafter, just to settle at lower 1.2900s on Friday.

The talks between the UK Prime Minister Theresa May and the European Union officials were reportedly “robust but constructive”, with Bloomberg reporting that robustness far outweighed constructiveness, indicating no much progress was made. The European Council President Donald Tusk said there is no breakthrough in sight for Brexit and talks will continue.

It looks like the Brexit deal negotiations are going nowhere ahead of the UK Prime Minister Theresa May meeting with the Irish Prime Minister Leo Varadkar later on Friday in an attempt to resolve much loathed Irish border backstop issue.

The Brexit stalemate is weighing on Sterling that broke the major support lines at 1.3030-1.3000-1.2970 and it is likely to test 1.2900 level once again.

Technically the GBP/USD is moving within a corrective trend after breaking the psychologically important 1.3000 and 38.2% Fibonacci retracement line of 1.2970 on Tuesday.

The technical oscillators like the Relative Strength Index (RSI) and Slow Stochastics (SS) are both pointing lower with Slow Stochastics making a bearish crossover in the Overbought territory indicating future price declines towards 1.2900 level representing a 100-DMA on a daily chart and 1.2800 representing 50-DMA on a daily chart next. On the upside, the 1.2970-1.3000 levels are expected to hold as a resistance line.

GBP/USD daily chart