Here’s why sterling slumped after BOE decision

The British pound plummeted on Thursday after the Bank of England (BOE) delivered a dovish interest rate hike. The GBP/USD pair dropped to a low of 1.2400, which was the lowest level since July 2020. It has collapsed by more than 13% from its highest level in 2021.

BOE rate decision

The Bank of England concluded its monetary policy meeting and decided to deliver its fourth interest rate hike since the pandemic started. It increased rates by another 0.25%, bringing the benchmark to about 1%.


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In a statement, the bank warned that the UK could go through a recession because of the elevated energy costs. It also said that these rate hikes were necessary in a bid to lower the current inflation rate, which sits at the highest point in more than a decade. 

The BOE also signaled that more rate hikes were necessary in order to stabilise inflation. Still, analysts believe that the bank will pause and observe the impact of its four rate hikes to the economy.

Recent data showed that the country’s economy was slowing down. For example, consumer confidence has dropped in the past six straight months while retail sales have plummeted. These are important numbers since consumer spending is the most important part of the UK economy.

The GBP/USD declined because of the Federal Reserve. In a statement on Wednesday, the Fed hiked interest rates by 0.50%, the highest increase since 2000. It was the bank’s second straight rate increase this year. 

Officials hinted that they will continue to hike interest rates this year and then start implementing a quantitative tightening policy.

The next main driver for the pair will be the upcoming US non-farm payrolls (NFP) data that are scheduled for tomorrow. The numbers are expected to show that hiring slowed down in April.

GBP/USD forecast

gbp/usd

The British pound has been forming a bearish pennant pattern that is shown in black. In most cases, a bearish pennant pattern is usually a sign that the asset will continue falling. Now, it has moved below the lower side of this pattern and the 25-day and 50-day moving averages. 

The Relative Strength Index (RSI) and the MACD have started to point downwards, Therefore, the pair will likely keep falling as bears target the key support at 1.2300.

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Source: https://invezz.com/news/2022/05/05/gbp-usd-forecast-heres-why-sterling-slumped-after-boe-decision/