Focusing on Bank of England

There are many factors that contributed to further losses in the GBP/USD currency pair currently which fell to support 1.2304 at the time of writing. This is the lowest analysis in five months. Watch this performance carefully today as the Bank of England will announce the update of its monetary policy.

The Bank of England is increasingly expected to announce its decision to keep interest rates unchanged later today in a decision that could lead to some interesting moves in the pound sterling against the other major currencies. Before that, the pound sterling fell following the release of mid-week UK inflation data that showed a broad-based slowdown in inflationary pressures in Britain, prompting investors not to bet on more interest rate hikes.

At the same time, big names such as Goldman Sachs and Nomura have informed clients that they have changed their expectations from raising interest rates by another 25 basis points to not raising interest rates after these numbers.

The first option: waiting, which leads to a weakening of the pound. And here, the Bank of England keeps interest rates unchanged and says it is happy to monitor the data when deciding on more interest rate hikes. This could be a substantial “facilitation” result for the pound since the bank will have effectively lifted the barrier to further hikes. It will allow the market to present the expectations for the reduction of interest rates in 2024, where there is a wide bandwidth for the movement. In short, the pound faces a significant amount of downside from such an outcome given the magnitude of potential shifts.

The second option: raising with the emphasis on stopping afterwards, leading to a weakening of the pound sterling. Here the interest rate is raised, but it is almost certain that the Bank will be required to provide guidance that an interest rate hike in November is unlikely and that the peak has been reached, in line with the clear testimony given by Bank of England Governor Andrew Bailey to Parliament in earlier this month. As with option 1, the market will be able to deliver on its expectations for a rate cut, making this another weak outcome for sterling.

Option three: skip and promise to raise interest rates in November, leading to a rebound in sterling. The most supportive outcome for sterling would be if the Bank signaled a pause but firmly committed to a rate hike in November, arguing that this gives them the opportunity to let incoming data reveal the impact of previous hikes while retaining insurance for another rate hike in the event. of unwelcome data surprises. Such a strategy delays the final rise and raises the “mission accomplished” slogan, which in turn leads to a retreat from this decisive pricing to lower the interest rate, thus supporting the sterling pound. In order for this to succeed, the market must be convinced of the bank’s directives, which is a difficult task for a central bank that often tends towards cautious results.

• According to the performance on the daily chart below, the general trend of the GBP/USD currency pair is still downward.
• The move towards the support of 1.2300 was widely expected in the light of the recent strong pressure on the pound from the statements of the governor of the Bank of England.
• The dollar gained strength with support From the positivity of the American data despite the tightening path of the American Federal Reserve Bank.
• The recent losses were enough to push the technical indicators towards strong oversold levels.

With the sterling not receiving a positive wound from the Bank of England’s realestate today, it may move towards stronger support levels, the closest of which are currently 1.2240 and 1.2170 respectively. There will be no first break of the general bearish trend without moving the currencies above the 1.2550 resistance again.

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