Home Forex Markets British Pound Slips After BoE Rate Hike

British Pound Slips After BoE Rate Hike

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It was down 0.28% on Thursday and was just above the 1.31 line during North American trading.

BoE hikes rates but pound weakens

As widely expected, rates were raised by 0.25%. It was the Bank of England’s unprecedented third interest rate hike in a row, but the new record failed to impress investors as the pound rose steadily ahead of the hike but fell just 0.8% after the hike.

Why are the grapes sour in the market after the rate hike? Investors may want more support from the central bank, such as raising rates by 50 basis points, or at least more support. Only one MPC member voted for a 50bps rate hike (the other eight voted for a 0.25% hike), giving the market the impression that the BoE wasn’t hawkish enough with soaring inflation. Inflation is expected to hit 6% in February and March, peaking at 7.25% in April, the central bank’s monetary policy summary noted.

Clearly, inflation is still a long way from falling to the Bank of England’s 2% target, and markets are looking for a positive response from the Bank of England. However, with the Ukraine war and soaring oil prices, Bank of England policymakers may choose to raise rates by less than market expectations.

As expected, the rate hike was 0.25%, the first rate hike since December 2018. The FOMC Dot Chart forecast six more rate hikes this year and forecast rates to rise to 2.8% by the end of 2023, well above the 1.60% estimate in December. The rate statement said the balance sheet reduction would begin in an “upcoming meeting,” but Chairman Jerome Powell removed some uncertainty at his news conference, suggesting a reduction in May. This double tightening is a clear sign that the Fed plans to be aggressive in its monetary policy, aiming to keep scorching inflation within the Fed’s 2%-3% target range.

GBP/USD technical

1.3075 is the monthly support line.Below, there is support at 1.2962, and resistance at 1.3184 and 1.3328

GBP/USD daily chart
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