GBP/USD drops to 1-week lows and rebounds after BoE’s emergency rate cut

• GBP/USD added to the overnight fall and witnessed some fresh selling on Wednesday.
• The British pound weakened across the board after the BoE slashed rates by 50bps.
• The downside remains cushioned, at least for now, amid some renewed USD weakness.

The GBP/USD pair dived over 100-pips in the last hour, hitting one-week lows in a knee-jerk reaction to the BoE's emergency rate cut.

Ahead of the scheduled policy meeting on March 26, the Bank of England surprised the market on Wednesday and slashed its benchmark interest rates by 50 bps to 0.25%. The UK central bank maintained its gilts purchase target at £435 billion and the corporate bond target was also left unchanged at £10 billion.

The BoE also announce that they are easing the countercyclical buffer to 0% from 1% previously. The British pound weakened across the board following the announcement and touched an intraday low level of 1.2828. However, some renewed US dollar selling bias extended some support and helped limit deeper losses.

Fading optimism over the US President Donald Trump's proposed economic stimulus package failed to assist the greenback to build on the previous session's strong positive move, which eventually turned out to be one of the key factors lending some support to the major, at least for the time being.

Investors also seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the first post-Brexit UK budget. The UK Chancellor of the Exchequer Rishi Sunak will present the budget later this Wednesday and might announce some relief to offset the impact of the coronavirus outbreak.

Technical levels to watch