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Bank of England raises interest rate by 75 basis points


Bank of England raises interest rate by 75 basis points

Unlike the Fed, the Bank of England has said the maximum interest rate is likely to be lower than financial markets are implying. Main takeaway from the policy statement just released, the BoE decided to cut interest rates by 75 basis points, bringing the OBR to 3.00% from 2.25% previously . There were 2 dissidents in the MPC, one (Dhingra) called for a 50 bps hike, the other (Tenreyro) 25. Overall there was a ‘accommodative hike’ written all over the place, and the initial market reaction made sense. The FTSE returned 30 points for the lows report while the GBP/USD pair is taken at a rate of 1.12.

The Bank of England fears that if it matches market interest rate projections, it will cause a recession:

  • BOE SEE TWO-YEAR RECESSION IF RATES FOLLOW MARKET CURVE
  • BOE: INTEREST RATE LIKELY PEAKS LOWER THAN MARKETS IMPLIED

With economic growth likely to be weaker, inflation should fall faster. The BoE has revised down its inflation discounters:

  • CPI forecast on a yan: 5.2% against 9.53% in August
  • Two-year CPI forecast: 1.43% vs. 2.00% in August in August

The Bank of England’s decision came at the previous day’s FOMC meeting, which saw the dollar rise and stocks fall. The BoE’s decision was somewhat expected, with some analysts calling for either a lower than expected rate hike or a lower terminal rate. The BoE decided to go for the latter, after rising 75 basis points and signaling other houses to come “albeit overnight lower” at 5.2% on the markets.

It’s a totally different message from Jay Powell, the Fed Chairman, who hinted that it was late in the evening that the terminal rate was going to be higher than expected, which sent shockwaves through financial markets as stocks, bonds and gold all fell.

Until Wednesday’s FOMC decision, the cable was able to remain supported around the 1.15 handle after climbing sharply from all-time lows in recent weeks, while the pair EUR/GBP and the other pound crosses are also stabilized, thanks to the somewhat positive political situation in the UK and a calmer tone in the financial markets in general.

More in light of the dovish rhetoric from the Bank of England and the hawkish message from the Fed, there is a risk that we could see GBP/USD start to retrace towards 1.10, and perhaps even lower . With the short-term uptrend line and support at 1 1250 broken, the technical path of least resistance is definitely not up right now.

Source: TradingView, StoneX

By Fawad Razaqzada, FOREX.com » Official Site

Bank of England raises interest rate by 75 basis points

Disclaimer: The information and opinions contained in the report are provided for general information only and do not constitute an offer or a solicitation concerning the sale or sale of foreign exchange contracts or CFDs. Although the information contained in this document comes from sources believed to be reliable, the author does not guarantee its accuracy and is not exhaustive, and assumes no responsibility for any direct, indirect or consequential damages that may result that he trusts such information.




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