- The Bank of England has raised rates by 75 bps for the first time in 30 years.
- However, the BoE has signaled that the peak interest rate will be lower.
- Forecasts point to a more painful recession, implying softer monetary policy.
- GBP/USD has more room to fall amid the Fed/BOE divergence.
A mirror image of the Federal Reserve – explaining the decline in GBP/USD, with more to come. While the US Fed is ready to slow down the pace of rate hikes but sees a higher peak, the Bank of England has taken the other route.
The "Old Lady" opted for a 75 bps hike, the biggest move since 1992, but also added that the peak interest rate will be lower than previously thought. And these are only the headlines.
Under the hood, BoEGovernor Andrew Bailey and his colleagues painted a bleak picture. They now see two full years of a recession, up from five quarters it had forecast in August. The peak inflation rate is now 11% vs. 13% previously published. While that is good news for the economy – thanks to warm weather – it is still painful for the pound.
There is a good reason for the pound to continue falling, especially against the US dollar and the hawkish Fed. Yet listening to the BoE, there is room for falls also against the euro. The British economy is set to underperform both America and the continent in the next two years, according to the Monetary Policy Report (MPR).
All in all, while the political crisis is over, the economic one has just begun. Britain is already suffering a recession, and the pound is heading down.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD jumps to 1.0910 as Dollar tumbles after Fed meeting Premium
EUR/USD reached levels above 1.0900 for the first time since early February after rising more than a hundred pips following the Federal Reserve meeting. The US central bank raised rates as expected but signalled it could end the cycle sooner than what was expected weeks ago. As a result, the DXY is falling more than 1%.
GBP/USD hits levels above 1.2300 boosted by Powell
GBP/USD climbed from 1.2240 to 1.2335, reaching the highest level since early February on the back of a sharp decline of the US Dollar. The FOMC raised interest rates by 25 bps. Powell warned that inflation remains high, but markets are not seeing further rate hikes. The DXY is at six-week lows.
Gold soars to $1,978 after Fed raises rates as expected Premium
Spot gold jumped to $1,978 during Fed Chair Powell’s press conference and then pulled back. A decline in US yields and broad-based Dollar weakness is offering support to the yellow metal, which is up more than 1% on the day.
Shiba Inu price targets 30% breakout trade which bulls will love to be part off
Shiba Inu (SHIB) price is setting the stage for a breakout trade later in the US session on Wednesday. The chart points to an inflection point with several indicators and bulls need to roll the dice here if they want to use the momentum to their advantage.
BoE Interest Rate Decision Preview: Preparing ground for a rate hike pause in May Premium
The Bank of England (BoE) is seen keeping up its interest rate increases, although at a slower pace in March, as the world battles financial sector risks.