British Pound hits fresh two-month lows sub-1.3220 as BoE stands pat on rates

GBP/USD extends losses below 1.3220 following the BoE's interest rate decisions.
The Bank left its benchmark rate unchanged at 3.75% as widely expected.
Data released earlier on the day revealed that UK unemployment declined unexpectedly in April.

Guillermo Alcala FXStreet

The British Pound (GBP) remains on the defensive against the US Dollar (USD) on Thursday, with the GBP/USD pair hitting fresh two-month lows near 1.3200, following the Bank of England’s (BoE) decision to leave interest rates unchanged.

No surprises at June’s BoE monetary policy meeting. The Bank Rate remains steady at 3.75% as widely expected, with two policymakers calling for a rate hike, as Swati Dhingra joined Huw Pill on the hawkish side. The bank also cut inflation forecasts for this year and upgraded underlying growth compared to April’s estimates.

UK Unemployment Rate declined unexpectedly in April

Earlier on the day, data released by National Statistics showed that the UK Unemployment Rate declined to 4.9% in the three months to April, down from 5% in the previous period, against market expectations of a steady 5% rate

The report also stated that the UK economy created 100K jobs in the mentioned period, down from the previous 148K increase, but above the 80K consensus. In this context, wages continued growing at a strong pace, with Average Earnings Excluding Bonus steady at 3.4%, against expectations of a slowdown to 3.2%. Including bonuses, salaries grew at a 4.4% yearly rate, unchanged from the previous month.

The pound, however, remains on its back foot as the Federal Reserve (Fed) delivered a rather hawkish hold, in the first meeting chaired by Kevin Warsh, which sent the US Dollar rallying across the board. The bank left its benchmark rate in the 3.50%-3.75% range, but removed language hinting at an easing bias from the statement, and the interest rate projections showed that nearly half of the board members foresee a rate hike before the end of the year.

Economic Indicator

BoE Interest Rate Decision

The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.

Economic Indicator

BoE MPC Vote Rate Hike

Interest rates are set by the Bank of England’s (BoE) Monetary Policy Committee (MPC). The MPC sets an interest rate it judges will enable the BoE’s inflation target to be met. It is comprised of nine members – the Governor, the three Deputy Governors, the Bank's Chief Economist and four external members appointed directly by the Chancellor. Investors look at each member’s vote in order to seek cues over how unanimous was the decision on interest rates.

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