Bank of England's tight policy decision to support GBPUSD

21 September 2023 156
Bank of England's tight policy decision to support GBPUSD

The GBPUSD currency pair declined after the Fed meeting due to the regulator's comments on possibly tighter monetary policy. All risk assets started to fall as the dollar index updated its 5-month high.

The U.S. Fed left the benchmark interest rate unchanged. Also, representatives of the regulator made it clear that the cost of borrowing is likely to rise for a longer period of time. The central bank has outlined a stricter course of action to fight inflation through 2026. The Fed officials believe it is possible to reduce inflation without damaging the economy or causing significant job losses.

12 out of 19 Fed officials said they still expect another rate hike this year.

During the press conference, Powell emphasized that the market is facing a high degree of uncertainty.

Today, investors will pay particular attention to the Bank of England's decision regarding a possible end to the series of interest rate hikes that began in December 2021.

The UK government unexpectedly reported yesterday that inflation in the country fell to 6.7%. Analysts had expected price growth to stay at an annualized rate of 7%. Such data signals the risk that the Bank of England will announce the end of the monetary tightening cycle at its meeting today. Commonwealth Bank of Australia and Nomura Holdings Inc. forecast further weakening of the British pound after the release of inflation data.

According to previous forecasts, the Bank of England was expected to hike the rate by 0.25% today. We stick to the opinion that the increase will take place. The regulator will keep an eye on the Fed's comments. It is also well aware of where GBPUSD could fall if it shows weakness at the meeting today. The Bank of England understands that the devaluation of the local currency will cause panic among the population.

A rate hike will mean growth for the British pound.

According to the technical analysis, the GBPUSD currency pair is moving in a downtrend. Following the Fed's decision, the decline is attempting to accelerate. Most likely, if the decision of the Bank of England is "hawkish", the British pound will rebound.

The upper boundary of the trend at 1.242 will be the growth target. Stop-loss could be placed upon updating today's low, which matches the price of 1.228.


The GBPUSD currency pair growth:

Take profit – 1,242

Stop-loss – 1,228

This content is for informational purposes only and is not intended to be investing advice.

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