BoE Monetary Policy Decision – Overview

The Bank of England (BoE) is scheduled to announce its monetary policy decision this Thursday at 11:00 GMT and looks poised to hike rates for the seventh time since December to rein in soaring inflation. The broader consensus is that the UK central bank would raise benchmark interest rates by 50 bps. Meanwhile, UK Prime Minister Liz Truss announced an energy relief package for households and businesses, which could help slow inflation and sets the stage for a dovish pivot.

Analysts at Danske Bank offer a brief preview and explain: “We expect BoE to hike the Bank Rate by another 50 bps but acknowledge that it is a close call between 50 bps and 75 bps. We expect further 50 bps hikes in both November and December followed by 25 bps in February. Hence, we lift the end point of our projection to 3.25% (prev. 2.50%). We expect fewer hikes than priced in markets as we emphasise the rising recession risk.”

How could it affect GBP/USD?

Heading into the key event risk, the GBP/USD pair stages a goodish rebound from its lowest level since 1985 touched earlier this Thursday amid a sharp US dollar pullback from a two-decade high. A decision to frontload the rate hike and deliver a supersized 75 bps increase could prompt aggressive short-covering around the British pound. That said, any immediate 
market reaction is likely to remain limited amid the looming recession risk.

Conversely, a dovish tilt should weigh heavily on sterling and set the stage for an extension of the GBP/USD pair's recent well-established bearish trend. This, along with a further escalation in the Russia-Ukraine conflict, would be enough to confirm a fresh bearish breakdown and drag the GBP/USD pair further below the 1.1200 round-figure mark.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical overview of the GBP/USD pair and writes: “The Relative Strength Index (RSI) indicator on the four-hour chart stays well below 30, pointing to extremely oversold conditions in the pair. Unless the BoE delivers a hawkish surprise as mentioned above, however, market participants are likely to ignore the technical conditions for the time being.”

Eren also outlines important technical levels to trade the GBP/USD pair: “Interim support seems to have formed at 1.1220 (static level) before 1.1200 (psychological level) and 1.1100 (psychological level). On the upside, initial resistance is located at 1.1250 (former support) ahead of 1.1300 (psychological level) and 1.1350 (static level, 20-period SMA).”

Key Notes

  •  BOE Interest Rate Decision Preview: GBP/USD braces for volatility storm, eyeing a 75 bps hike

  •  BoE Preview: Forecasts from 10 major banks, a close call between 50 bps and 75 bps

  •  GBP/USD Forecast: Can pound find bottom on a 75 bps BoE hike?

About the BoE interest rate decision

The BoE Interest Rate Decision is announced by the Bank of England. If the BoE is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the GBP. Likewise, if the BoE has a dovish view on the UK economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

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