Cautious BoE warns on "Fog of Brexit"

Bank of England

Bank of England

Earlier in the session the currency was lifted by a report that United Kingdom cabinet ministers are discussing plans to delay Brexit by eight weeks.

Economy as whole not yet prepared for no deal Brexit.

The EU on Friday urged British Prime Minister Theresa May to grasp an offer from the Labour opposition to break an impasse over Brexit, but that would reverse May's determined position. The prognosis for 2020 was adjusted from 1.7 to 1.5 percent. Against the euro, it traded flat at 87.52 pence.

The pound slumped to a two-week low on Tuesday after a survey suggested the British economy was flat-lining. That bucked a trend of the currency largely ignoring economic data and instead swinging wildly on news about the Brexit talks.

The pound has been supported in 2019 by a growing belief that a last-minute agreement will avert a no-deal Brexit.

But jitters returned after the January 29 vote in parliament which asked May to persuade the European Union to accept changes to the Brexit agreement.

"I can understand that speculative market participants are ready to bet on the GBP recovery".

Sterling has broken convincingly below the 200-day moving average against the resurgent dollar, an important technical level that prompted more investors to join the sell-off.

The Pound Sterling to US Dollar (GBP/USD) exchange rate is rangebound this morning as hopes of the US and China reaching a trade deal before the 2 March deadline were dampened.

With another parliament vote due in mid-February, derivatives markets are painting a cautious outlook for the pound with shorter-dated risk reversals indicating a greater bias for sterling puts over calls.

In its monthly policy release, the Bank of England announced that it was holding the base interest rate steady at 0.75% for the sixth consecutive month, as expected, and cut its growth forecast for the United Kingdom economy for the calendar year 2020. Rates last went up in August 2018. The next move will probably hinge on how Brexit plays out.

Nevertheless, the pound could slide if BoE Governor Mark Carney adopts a dovish tone in his speech this afternoon and reiterates his previous warnings about the risks of a "chaotic" Brexit.

The bearish pressure surrounding the British Pound remained unabated, with the GBP/USD pair falling to 2-1/2 week lows, around mid-1.2800s post-BoE announcement.