GBP/USD drops toward the 1.1250 area after BoE’s hike

• The BoE raised rates to 2.25%, though the interest rate differential with the Fed capped upward pressure on the GBP/USD.
• US Initial Jobless Claims again exceeded estimations, justifying the case for yesterday’s Fed rate hike.
• On Friday, S&P Global PMIs would be featured for the UK and the US, and Fed Chair Jerome Powell will speak.

The British pound oscillates around its opening price, following consecutive monetary policy decisions of the Bank of England, earlier rising rates by 50 bps, while the Fed hiked 75 bps on Wednesday. Initially, the GBP/USD dropped toward new YTD lows at 1.1211 but bounced off and hit a daily high above 1.1350 before tumbling below the 1.1300 mark. At the time of writing, the GBP/USD trades around 1.1258s.

Overnight, market sentiment remains negative, as shown by global equities trading in the red. The Bank of England lifted rates to the 2.25% mark while saying it would continue to “respond forcefully, as necessary” to elevated prices. Worth noting that three members of the Monetary Policy Committee (MPC), namely Ramsden, Haskel, and Mann, voted for a 75 bps. In contrast, Swati Dhingra, its newest member in place of Michael Saunders, wanted a 25 bps.

GBP/USD seesaws around 1.1250s post-Fed and BoE’s rate hikes

At the same meeting, the MPC voted to reduce the BoE’s GBP 838 Billion by 80 billion pounds over the coming year. The BoE expects inflation to peak at around 11%. Now that September’s meeting is in the rearview mirror, money market futures still estimate the BoE to increase rates towards the 3.75% mark.

Aside from this, the US economic docket featured unemployment claims for the week ending on September 17, which rose by 213K less than estimates of 217K, further confirming yesterday’s Fed decision to hike rates by ¾ of a percent toward the 3.25% threshold, as data shows a solid labor market.

In the meantime, the US Dollar Index, a performance measure of the buck’s vs. six currencies, barely rises 0.05% up at 111.408, while the US 10-year T-bond yield skyrockets 17 bps, toward the 3.704% threshold, for the first time since February of 2011.

Therefore, the GBP/USD would likely remain on the defensive. After the BoE’s projected a 15-month recession, to likely begin by the year’s end, will further exert downward pressure on the pair, as the US dollar will likely continue to strengthen as the Fed prepares to end the 2022 tightening cycle at around 4.4% levels.

What to watch

The UK economic calendar will feature the GfK Consumer Confidence and the S&P Global Services, Manufacturing, and Composite PMIs. On the US front, the US S&P Global PMIs would also be reported, alongside Fed Chair Jerome Powell’s speech at around 18:00 GMT.

GBP/USD Key Technical Levels