GBP/USD Stabilizes After BOE Decision And UK Recession Forecasts
Alex Boltyan | Aug 04, 2022 04:28PM ET
The GBP/USD pair fell during the European session and hit a six-day low at 1.2065 before recovering and reversing daily losses during the New York session. The dovish tone of Bank of England's Monetary Policy Report and Governor Andrew Bailey's conference prompted the sterling's sell-off.
At the time of writing, GBP/USD is trading around 1.2160, having regained the lost ground and trading 0.22% above its opening price, as the dollar weakened on the back of disappointing U.S. data.
The Bank of England (BoE) raised its benchmark interest rate by half a percentage point, the biggest rate hike since 1995, to 1.75%. The decision was almost unanimous, voted by all Monetary Policy Committee (MPC) members, but Silvana Tenreyro was the only one who did not support the increase.
The projections, Andrew Bailey's brutal honesty, and the Monetary Policy Report initially weakened the pound. At a press conference, the BoE governor assured that inflation will reach a peak of 13% in the coming months and that it will remain "very high" in 2023, only to drop to the long-term target of 2% in 2024. As for the GDP, the report detailed that the British economy will enter a prolonged recession in the fourth quarter, whose recovery will also come in 2024.
The gloomy outlook for the U.K. economy worsened the GBP/USD outlook. Many analysts believe the forecasts will become a self-fulfilling prophecy, leading to further declines in the near term.
Meanwhile, Friday’s calendar will feature the U.S. nonfarm payrolls report, expected to show the economy added 250K jobs in July.
From a technical standpoint, the short-term perspective for the GBP/USD pair looks neutral to slightly positive, thanks to the bounce during the day's second half. The RSI remains almost flat above its midline, while the MACD prints declining green bars, indicating a slowdown in buying interest.
On the upside, the first resistance to overcome is seen at today's highs in the 1.2215 area, followed by the weekly high of 1.2290 and then the 1.2350 area. On the downside, the 20-day SMA, currently at 1.2028, offers solid support. Below this latter, the 1.1960 area and the psychological level of 1.1900 are the following levels to consider.
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