GBP/USD Analysis Ahead Of BOE Monetary Policy And Rate Decision The Pound is getting a boost from traders who expect the Bank of England (BOE) to hike their interest rates on Thursday.
Markets are split, with most expecting no change at this time, but CME Group's BOE Watch Tool shows that markets have priced in a 55% chance for 15 basis point rate hikes.
It might be enough alone, even without any other actions taken by policymakers like buying stocks or bonds.
The GBP/USD exchange had some relief yesterday after reaching on nearly 1.3600 price zone. But yesterday, it formed a nice bullish candle.
The BOE could also opt-out to make a "dovish rate hike" and reassure markets that they will wait and see how inflation reacts to the policy before deciding what are next.
BOE governor remarks on the outlook for CPI should be taken into consideration. If BOE adopts a cautious tone, many investors may believe it is good news about GBP from a long-term perspective. But since economists think his comments will dampen market expectation of Bank Rate hikes any time soon.
The Pound is getting a little bit better against the Dollar. It's still going down, but at least it's not declining as fast. So there are some positive signs that we may be seeing an end in sight.
A few days ago, we saw how GBP has been suffering lately due to uncertainty over Brexit negotiations. However, things seem like they're starting to turn around after comments made by FOMC Chairman Jerome Powell yesterday.
He said he doesn't think policymakers will hike rates until 2022 (instead of 2021) if economic conditions continue on their current path without any significant disruptions or shocks hitting markets first before then announcing another rate cut once QE ends).
So, if we see BOE keeps their policy unchanged, that will hurt GBP/USD, and it may test 1.3420 very soon.
The Bank of England is a hot potato right now. The new Chief Economist Huw Pill and external member Catherine Mann have expressed concerns over earlier monetary policy tightening.
At the same time, according to some economists, Dave Ramsden and Michael Saunders cheered hawks at the previous meeting's policy discussion with an eye on future rate increases and increasing inflation expectations ahead of possible hikes later this year or early 2022' predictions.
It could be good news for those heavily invested in stocks but could hurt those living off their savings accounts once more interest rates start climbing again from here on out.
We all know current BOE governor Bailey is a hawkish member, so if he delivers his speech as usual, what we saw before GBP/USD may test 1.3690/1.3710 immediately.
If the BOE hike rates today or hints they will hike rates this year or early in the next year, it is not hard for GBP/USD to test 1.2790/1.3800 or above.
Technical Analysis
GBP/USD closed the candle yesterday with a full-body bullish candle. However, the market dropped nearly 60 pips from the recent high now. From the present rate, strong support is identified at the 1.3600 price zone.
If BOE doesn't deliver a hawkish statement, GBP/USD may break below 1.3600 will test 1.3550/1.3500 very soon.
Another scenario is, BOE may deliver a dovish statement, but they will hike rates 15 bp. in that case, GBP/USD may drop nearly 1.3550 initially but will bounce about 1.3690 price zone.
Or GBP/USD will spike to the 1.3690/1.3710 price zone and back towards the 1.3550 price zone.
To break above 1.3710, We need a hawkish statement as well as a 15Bps rate hike. On the other side, to break below 1.3550, we need dovish information with no rate hikes.
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