FOMC delivered a 50 basis point rate hike, in-line with market expectations, and announced the beginning of balance sheet run-off in June. As the pace of monthly reductions in the balance sheet was lower than expected and Powell said that 75 bp rate hikes are not actively considered, equity markets rallied and USD dropped. Now market attention shifts to another major central bank - Bank of England - as it is scheduled to announce its monetary policy decision today at 12:00 pm BST. Market expects another 25 basis point rate hike that will push the main interest rate to 1.00%. This would be a fourth rate hike in a row, highlighting BoE's efforts to combat inflation that has recently reached a 30-year high at 7% YoY. While the hike looks almost certain, it is expected that it will be a "dovish hike". BoE needs to to be careful with hiking in order not to push the UK economy into recession. As such, emphasis will likely be made that further rate hikes will be of the same magnitude - 25 bp rather than 50 bp as Fed did. However, it is expected that today's hike will be passed with 7-2 votes, meaning one more dissenter compared to March hike (8-1). This, in turn, may hint that opposition to further tightening may continue to increase.
Taking a look at GBPUSD chart at D1 interval, we can see that the pair has recently stumbled to the support zone, marked with 61.8% retracement of the post-pandemic upward move (1.2500 area). The drop was driven by USD strengthening. A post-FOMC weakness in USD that surfaced yesterday allowed the pair to bounce off the area but majority of that move has been erased today already. Should BoE strike a cautious tone regarding future rate hikes, GBPUSD may experience some weakness and a retest of 1.25 zone may occur.
Source: xStation5
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile appThe content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
