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BoE Hikes by 50bps, Highest in 27 Years!

British Pound Forecast: GBP/JPY Edging Higher, GBP/USD Eyes BoE’s Bailey


POUND STERLING TALKING POINTS

  • Recession reservations hurt GBP.
  • 50bps not enough to support cable upside.

GBP/USD FUNDAMENTAL BACKDROP

The Bank of England (BoE) expectedly hiked interest rates by 50bps primarily stemming from international pressures from the Federal Reserve and more recently some ECB speakers. The ECB’s Kazaks announced that the ECB should continue to hike rates to tackle inflation.

GBP/USD ECONOMIC CALENDAR

Source: DailyFX Economic Calendar

INFLATION FORECASTS

On the inflation front, the October 2022 forecast has been revised higher from 11% to 13.3% while the BoE anticipates a recession in Q4 2022 for a duration of 5 quarters. With the higher interest rate, the squeeze on the consumer will increase particularly in the mortgage space as well as its effect on retail sales and consumer spending.

Going forward, money markets are still expectant of further rate hikes but with the constant threat of an energy crisis and global recessionary fears could see a swift reduction in rate hikes which is feasible considering the BoE was the first major central bank to raise rates.

BOE INTEREST RATE PROBABILITIES

BoE interest rate probabilities

Source: Refinitiv

TECHNICAL ANALYSIS

GBP/USD DAILY CHART

gbpusd daily chart

Chart prepared by Warren Venketas, IG

Daily GBP/USD price action reacted negatively to the news. I assume this is primarily coming from the recession statement but an inverse reaction to a 50bps hike has not been uncommon across the globe. This pound is definitely trending lower as external global factors grow in influence.

Key resistance levels:

  • 1.2400/100-day EMA (yellow)
  • 50-day EMA (blue)

Key support levels:

  • 1.2080/20-day EMA (purple)

MIXED IG CLIENT SENTIMENT

IG Client Sentiment Data (IGCS) shows retail traders are currently LONG on GBP/USD, with 70% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however due to recent changes in long and short positions we settle on a short-term cautious bias.

Contact and follow Warren on Twitter: @WVenketas





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