GBP/USD Cautious after Thursday’s BoE-Fueled Plunge, Ahead of US NFPs
GBP/USD Analysis
The Bank of England (BoE) hiked rates by 25 basis points, to 1%, on Thursday as expected, making the fourth consecutive adjustment. It also pointed to more rate increases, noting that "most members of the Committee judge that some degree of further tightening in monetary policy may still be appropriate in the coming months". [1]
Officials appeared to be quite downbeat in regards to the economic outlook, offering gloomy projections. They now see a shocking inflation surge to over 10% in the last quarter of the year and GDP to contract in that same period.
Governor Bailey refrained from using the word "stagflation" during the press conference, as he believes it is "not very well defined" [2], but based on the bank's forecasts, it looks like this is where the UK economy is headed to.
The combination of these factors makes their job extremely difficult, since high consumer prices create the need for more interest rate increases, but economic slowdown does not leave room for such action.
GBP/USD shed more than 250 pips on Thursday and posted its worst day in more than two years, weighed by the central bank's decision and the downbeat outlook. It is now exposed to mid-1.2200, although fresh catalyst may be required for a breach of 1.2079-69.
The British Pound tries to take a breath today and it may be able to react higher, but a significant change is sentiment would be required to push through 1.2492-1.2500 and look to 1.2637.
Caution is needed, since today's economic calendar includes the closely watched US employment report, which has the potential to cause volatility and determine the pair's trajectory.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 06 May 2022 https://www.bankofengland.co.uk/monetary-policy-report/2022/may-2022 | |
| Retrieved 30 Jun 2022 https://www.youtube.com/watch |
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