Slightly dovish BOE hikes 25bps

The Bank of England delivered a dovish hike today, as it is concerned about a squeeze on household incomes.


The Bank of England gave markets what they were expecting and raised interest rates by 25bps from 0.50% to 0.75%, matching levels from pre-Covid.  The vote was 8-1, as Cunliffe voted for no change. He was concerned about how it would affect household incomes. The Committee referenced in its statement that the Russian invasion on Ukraine could accentuate inflation and have an “adverse impact on activity by intensifying the squeeze in household incomes”.  Note that the BOE has stated that once rates reach 1%, it will begin to sell bonds held on its balance sheet.  The BOE had begun to reduce holdings from its balance sheet at the last meeting by not reinvesting maturing proceeds.

The statement also noted they now see inflation around 8% in Q2, vs an expectation of 7.25% in February’s statement. However, the statement noted that further modest tightening “might be appropriate” in the coming months, but there are risks on both sides of that judgement.  This was changed from the February statement, which read “likely to be appropriate”.  Because of the expected increase inflation, the Committee noted that growth is likely to slow for countries that are net energy importers.  As a result, it only expects Q1 GDP to rise by only 0.75%.

GBP/USD had been slowly rising from 1.3000 on Tuesday to a high just before the statement release of 1.3211.  However, as the statement was viewed as more dovish, markets took the opportunity to “sell the fact” and push the pair almost immediately down to 1.3088.

20220317 gbpusd 15 Source: Tradingview, Stone X

GBP/USD made a high at 1.4250 on June 1st, 2020 and has been making lower highs and lower lows since then.  The pair bounced out of a descending wedge near 1.3160 and traded back up to a downward sloping trendline in mid-January near 1.3749.  GBP/USD pulled back once again and made a new low at 1.3000 on March 15th.  This was also the 127.2% Fibonacci extension from the low of December 9th, 2021 to the high on January 13th and psychological round number support.

20220317 gbpusd daily

Source: Tradingview, Stone X

On the 240-mintue timeframe, first resistance is at the 38.2% Fibonacci retracement from the highs on February 18th to the lows on March 15th, near 1.3246.  Above there is horizontal resistance at 1.3273, then the 50% retracement from the February to March move near 1.3322.  Big support is down at the prior lows near 1.3000.  Below there, horizontal support is at the lows from November 2020 near 1.2854 then the 161.8% Fibonacci extension from the previously mentioned December 9th, 2021 lows to the January 13th highs, at 1.2796 (see daily).

20220317 gbpusd 240

Source: Tradingview, Stone X

The Bank of England delivered a dovish hike today, as it is concerned about a squeeze on household incomes.  However, the BOE will have to tread a fine line if it is to continue with this wording as it tries to fight off rising inflation. 


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account