GBP/USD Disappointed By BOE’s Dovish Hike

GBP/USD Disappointed By BOE’s Dovish Hike

The dollar has erased most of the losses suffered after a cautious hike by the Fed on Wednesday. After a brief sell-off, the USD index switched into recovery mode to regain the 103.00 figure today as US Treasury yields resumed the ascent while risk demand is waning already.

Following a short-lived rebound above 1.2600, GBP/USD came back under the selling pressure that intensified after a monetary policy decision by the Bank of England. The central bank raised interest rates by 25 basis points to 1.0%, in line with expectations. Despite the split being more hawkish than anticipated, the cable plunged after a knee-jerk rally as several MPC members said that the bank shouldn’t raise interest rates a lot more, citing risks to growth.

Against this backdrop, the pound fell to fresh mid-2020 lows around 1.2360 and was last seen clinging to the lower end of the extended trading range. Adding to a downbeat tone surrounding the sterling, Bank of England Governor Andrew Bailey said they are not planning to sell gilts before August. Any gilt sales must be “consistent with the effective gilt market function.” Furthermore, policymakers now expect the GDP to contract in the fourth quarter and a recession to follow in early 2023.

The subsequent plunge in the cable helped accelerate the UD dollar’s recovery during the European trading hours, with the 104.00 mark coming back into the market focus as the USD index quickly leaves behind the recent weakness. If the ascent picks up further, the buck could challenge nearly twenty-year highs just below the mentioned figure. As for the GBP/USD pair, now that the prices have settled below 1.2400, there isn’t much support for the cable through to 1.2000. 

 



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