Sterling Yawns After BoE Hike

Republished By Plato

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The British pound is slightly lower in Friday trading. It has been an excellent week for GBP/USD, which has gained 1.26%. If the pound can maintain these gains during the day, it will mark the currency’s best weekly showing since December 2020.

BoE raises rates by 0.25%

As was widely predicted, the BoE raised rates by 0.25% at Thursday’s meeting. This brings the key rate 0.50% and was the first back-to-back rate hike since 2004. This didn’t make much of an impression on the markets, as the pound rose only slightly after the meeting.

What was surprising about the decision was that four of the nine MPC members voted to raise rates by 0.50%, which would have marked the biggest rate hike by the BoE in over 25 years. The large minority shows just how hawkish the BoE has become in recent months.

Governor Andrew Bailey stated that the markets should not assume that the BoE planned a series of rate hikes, but it’s questionable whether investors will pay close attention to his message. Bailey has a credibility problem after surprising the markets with his rate decisions late last year, and the tight 5-4 vote at the meeting shows significant dissension with regard to BoE monetary policy.

The US nonfarm payroll report will be released later today. The report is often the highlight of the trading week, but this time around the markets are more focused on interest rate guidance and next week’s US inflation report. The ADP employment report showed a massive loss of jobs, at -301 thousand. This was the sharpest decline since April 2020, when the Covid pandemic started. The markets aren’t bracing for a repeat from the NFP, but expectations are low, with a consensus of 150 thousand.

GBP/USD Technical Analysis

GBP/USD faces resistance at 1.3648 and 1.3740
There is support at 1.3522 and 1.3440

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A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.