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Asset Watch
Thursday, August 03, 2023
The Bank of England implemented a widely expected move by raising interest rates by 25 basis points, bringing the rate to 5.25%. Notably, the central bank had taken an unexpected step in the prior session, opting for a 50 basis points increase. However, the drop in inflation levels as indicated in the July report has granted the Bank of England’s Monetary Policy Committee some room to ease its previously tight monetary stance.
Yet, this does not necessarily imply a halt in the series of interest rate hikes. Market expectations point towards a continuation of rate increases with a 25 basis points raise projected for the upcoming September meeting. Following this, the Bank of England may adopt a similar approach to the Federal Reserve and the European Central Bank in being data dependent through assessing inflation data prior to deciding on any further rate hike, pausing, or even ending the rate hike cycle at the November meeting.
Given the current inflation levels and their deviation from the targeted 2%, the prospect of lowering interest rates at the start of the coming year appears unlikely. Consequently, it is likely to see interest rates to stabilize around 5% throughout 2024.
Interestingly, the immediate impact of the Bank of England’s decision to raise interest rates by 25 basis points did not have a substantial effect on the value of the pound sterling. This muted reaction can be attributed to the fact that the markets had already priced in the interest rate hike prior to the official decision being announced.
Chart source ADSS Platform
On July 27, the GBP/USD broke below the bulish trendline originated from the 5 of June low at 1.2368 then closed below the 50-day simple moving average indicating that sellers were in charge.
A daily close below 1.2616 could encourage some traders to press the pair even lower towards 1.2383. That said, the support levels located at 1.2550 and the 200-day simple moving average should be kept in focus.
On the other hand, a daily close above 1.2775 signals a possible rally towards 1.3047 . However, the resistance levels residing at 1.2866 and 1.2990 should be watched closely.
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