The Bank of England took exceptional measures recently by implementing the largest rate cut that they have ever issued. It was also the first rate cut that the BoE has issued in about seven years. It’s no surprise that England’s economy has been experiencing some shockwaves ever since the vote to leave the European Union, and the timing of this cut is surely not a coincidence. The rate was cut down to a record low of 0.25 percent, a move of 25 basis points. This particular move was a unanimous decision, although other portions of the stimulus package that passed through were split decisions. Amongst other things, one of the measures that passed through was a more lenient lending program for banks.
The immediate repercussion that we should expect to see here is that the pound sterling is going to gain more traction. This was not the case right away, though. Shortly after the announcement, the GBP fell quickly against the U.S. dollar, falling from levels around 1.3350 down to 1.3200 and below. The bulk of that decline in price occurred within less than ten minutes. The tentative explanation for this is that the rate cut is not just “exceptional,” as many analysts described it, but an act of desperation, too. It’s no secret that the “Brexit” had a negative impact on the British economy, and a rate cut should go a long way toward making repairs, but only with the caveat that investors feel that England is still a competitive economic force. Most investors already readily believe this as England did carry much of the economic weight of the EU on their shoulders, but most are now waiting for the damage control portion of the exit to be completed before they put their money back into the market.
It needs to be pointed out that the ten minute interval mentioned above would have been a fantastic point to be in the market, either as a Forex trader or a binary options trader. Both markets had ton of potential during this brief period of time, with the obvious downside being that it was an unexpected move. However, once it began, it had a lot of momentum behind it, thus giving opportunities to the most observant of traders. It would have been tough to spot, but that is the name of the game here, and being able to play off of this purely psychological response is a game changing move for your trading strategy.
At this point, the smart thing for a trader to do is to play off of this uncertainty. Since our money isn’t going to be tied up for long thanks to the very nature of binary options, it is okay to take out ultra short term positions that take advantage of the inefficiencies that are being created in the Forex market right now, watching as investors buy and sell the GBP/USD, or other related pairs, trying to get a handle on what the British and European markets are doing to compensate for the impending separation of England and Europe.
The head of the BoE, Mark Carney, commented to reporters afterward that the unprecedented move took place because of the negative features they are picking up on their economic indicators. England’s economy is seeing levels that it hasn’t seen since the financial crisis of 2008 and 2009, and in some cases, the situation is even worse than this. It’s also important to note that Carney is staunchly against negative interest rates, as some countries (such as Japan) have experimented with. He said that they wanted to stay close to zero with the rate, but would not go below.