In a widely anticipated move, the Bank of England (BoE) raised interest rates by 75 basis points on Thursday but sterling remained unamused.
Despite delivering its biggest rate increase in 33 years, this came with grim warnings over the UK’s economic outlook and path of future policy rates. The central bank struck a cautious note, expressing concerns over Britain experiencing its longest recession since records began. Looking at the policy statement and overall mood of the meeting, today’s decision felt like a “one-off” move – especially after stating that the peak interest rates are likely to be lower than speculated by financial markets. The BoE meeting certainly took a different turn when compared to the Fed. Yesterday, not only did the Federal Reserve raise interest rates by 75bp – it also signaled that the ultimate level for interest rates will be higher than previously expected!
Redirecting our attention back towards the pound, it has weakened against every single G10 currency today. With investors expecting the BoE to exit the jumbo rate hike club by December due to the deteriorating economic outlook and political developments, sterling could be set to weaken further. The GBPUSD remains under pressure on the weekly and daily charts. Sustained weakness below 1.1500 could open the doors back towards 1.0925.
Zooming in on the daily charts, prices have broken through the bullish channel and currently testing the 1.1200 support level. A strong daily close below this support could encourage a selloff towards 1.0925. Should 1.1200 prove to be reliable support, prices could experience a rebound back toward 1.1400.