This article was submitted by Aaron Hill from FP Markets.
BoE Hikes Bank Rate by 25 Basis Points
Versus the US dollar, the pound took a rather hefty hit on Thursday, dropping around 1.0% and settling at session lows. Midday UK time observed the Bank of England (BoE) raise the Bank Rate by 25 basis points to 4.5%, pulling rates to levels not seen since 2008. A 7-2 majority vote favoured the increase, with two members (Swati Dhingra and Silvana Tenreyro) preferring to pause rates at 4.25%.
The central bank also revised its short-term forecasts. While February’s forecast predicted a recession lasting five quarters, expectations are now for the UK economy to avoid recession and record 0.9% growth by 2024, according to the Monetary Policy Report. Regarding inflation, consumer prices are expected to slow sharply from this point onwards. Note that annual UK inflation has fluctuated around 10.0% since last summer. The revised inflation expectations call for the annual inflation rate to be halved by the end of the year (instead of 3.9% in the previous forecast) and below the 2.0% target by 2025.
The BoE also maintained its current forward guidance—data-driven—as the central bank remains committed to tackling inflation. Markets see rates peaking around 4.8% in November, essentially unchanged from before the rate announcement.
GBP/USD: Downside Move Unsurprising
GBP/USD initially rose following the announcement to increase the Bank Rate, though it failed to find acceptance north of the $1.26 level. Subsequent flow witnessed a one-sided decline unfold to $1.25 during US trading.
The recent bout of selling should not have raised too many eyebrows, particularly for those who adopt a multi-timeframe technical approach. The weekly timeframe, albeit showing the currency pair closing higher for eight consecutive weeks, reveals price action crossed swords with a major long-term weekly trendline resistance taken from the high of $1.4250. Sellers have clearly put in an appearance from here, swinging weekly support at $1.1851 back into view.
Aiding the weekly timeframe’s resistance, I see resistance also made its way into the frame between $1.2767 and $1.2638, consisting of weekly resistance and daily resistance levels. This has thrown light back on daily support coming in at $1.2272 and also pulled the Relative Strength Index (RSI) to within striking distance of the 50.00 centreline and an indicator trendline resistance-turned-support level drawn from the high 69.44.
Shorter term, buyers and sellers are squaring off around the $1.25 handle, as of writing. Overhead, resistance warrants attention at $1.2552, followed by $1.2586, while stepping under $1.25 casts light towards support from $1.2453.
Ultimately, the technical direction is favoured to the downside, meaning a break of $1.25 could be in the offing, a move perhaps opening the door for short-term breakout sellers towards H1 support from $1.2453.
Charts: TradingView
Last week’s report: Daily Report: EUR/USD displaying bullish vibe post-US CPI… Read More
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Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.
Charts: TradingView