Where Is the GBP Left After BOE Hikes Rates to 4.50%?

Posted Thursday, May 11, 2023 by
Skerdian Meta • 2 min read

Is the trend changing for GBP/USD?

GBP/USD has been bullish since October, after the Bank of England intervened in the markets, following the surge in UK gilt yields. The sentiment improved for the GBP while the BOE kept raising interest rates, which has been fuelling the bullish momentum for GBP/USD.

The FED seems to have delivered the last rate hike early this month worth 25 basis points, which weighed on the USD, while this week’s CPI inflation report showed a slight decline in both the headline CPI and core CPI (consumer price index), although the details such as the monthly number were more robust.

GBP/USD pushed above the 200 SMA (purple) on the daily chart, which then turned into support but buyers couldn’t break above the major resistance zone around 1.2550. Although that zone was broken and this pair was heading for 1.30 ahead of today’s rate decision by the Bank of England, which decided to tighten the policy again.

Bank of England Rate Decision May 11

Prior 4.25%
Bank rate vote 7-2 vs 7-2 expected (Dhingra, Tenreyro voted to keep rates unchanged)
If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required
Risks to inflation forecasts skewed significantly to the upside
Pay growth could plateau at rates inconsistent with inflation target
Estimates “flat” GDP for Q1 and Q2 (March forecast was -0.1% q/q for Q1)
Full statement

Of note, the BOE has revised its projections to show a higher path for inflation as well as a big bump in terms of GDP forecast. That’s a bullish take at least, with the rest of the decision and forward guidance being consistent with what is expected and what we have seen from the central bank previously.

GBP/USD caught a jump from 1.2575 to a high of 1.2615 before reversing lower and ending down to 1.25. As much as there are bullish elements to the report, I don’t see this skewing the market pricing all too much as a 5.00% peak in the bank rate has already been nearly priced in beforehand.