- The BOE has raised rates by 0.25% as widely but not unanimously expected.
- GBP/USD has tumbled on a dovish dissent, also reverting a rise beforehand.
- Further rate hikes, hopes for a deal on Ukraine, could help GBP/USD recover.
A dovish hike – the Bank of England has delivered a cautious increase of interest rates, similar to what investors had expected from the Federal Reserve. One dovish dissenter – Jon Cunliffe who preferred to leave rates unchanged – and a subtle change in tone are genuine reasons to sell sterling.
The bank previously said that further modest tightening is likely to be appropriate, and now it says it may be appropriate. One dovish dissenter out of nine and that single word do not go the full length to explain the 100-pip downfall of GBP/USD.
A quick look at the chart reveals the main reason – a classic "buy the rumor, sell the fact" response. Cable has reverted to levels seen early in the day. Investors bet on a 50 bps rate hike that – 40% chance according to bond markets, and that wager totally failed.
What's next? GBP/USD has room to recover from these lows, for several reasons.
First, the BOE forecasts inflation to hit 8%, an alarming level and a substantial upgrade from previous projections. It would have to act to curb it, especially as long as Britain's labor market looks strong.
Second, the bank's mood may swing back to a hawkish mood next time – Governor Andrew Bailey shocked markets by refraining from lift-off in November but then provided a surprising hike in December – without a press conference to explain it. The pendulum swing to the hawkish side may follow.
Third, there is room for short-term recovery on hopes for a Ukraine-Russia deal, or at least a truce. Investors remain optimistic, and that could weigh on the safe-haven dollar. China's pledge to support the economy and the stock market also underpins sentiment, another greenback-adverse development.
All in all, a buying opportunity seems to be on the cards after a "buy the rumor, sell the fact" response.
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 holds above 1.0700 ahead of key US data
EUR/USD trades in a tight range above 1.0700 in the early European session on Friday. The US Dollar struggles to gather strength ahead of key PCE Price Index data, the Fed's preferred gauge of inflation, and helps the pair hold its ground.
USD/JPY stays above 156.00 after BoJ Governor Ueda's comments
USD/JPY holds above 156.00 after surging above this level with the initial reaction to the Bank of Japan's decision to leave the policy settings unchanged. BoJ Governor said weak Yen was not impacting prices but added that they will watch FX developments closely.
Gold price oscillates in a range as the focus remains glued to the US PCE Price Index
Gold price struggles to attract any meaningful buyers amid the emergence of fresh USD buying. Bets that the Fed will keep rates higher for longer amid sticky inflation help revive the USD demand.
Sei Price Prediction: SEI is in the zone of interest after a 10% leap
Sei price has been in recovery mode for almost ten days now, following a fall of almost 65% beginning in mid-March. While the SEI bulls continue to show strength, the uptrend could prove premature as massive bearish sentiment hovers above the altcoin’s price.
US core PCE inflation set to signal firm price pressures as markets delay Federal Reserve rate cut bets
The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase.