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GBP/USD Falls To Lowest Since 1985 Despite BOE's Rate Hike

By Alex BoltyanForexSep 22, 2022 05:48PM ET
www.investing.com/analysis/gbpusd-falls-to-lowest-since-1985-despite-boes-rate-hike-200630203
GBP/USD Falls To Lowest Since 1985 Despite BOE's Rate Hike
By Alex Boltyan   |  Sep 22, 2022 05:48PM ET
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The GBP/USD pair fell to its lowest level since 1985 on Thursday following the  Bank of England's decision to raise interest rates by 50 basis points, sending the key rate to 2.25%, to curb inflation.

Still, bearish pressure on the GBP/USD pair intensified as the Fed–BoE rate gap widened on Wednesday's Federal Reserve's decision to hike the fed funds range by 75 bps to 3-3.25%.

Furthermore, the economic perspective seems much more benevolent in the U.S. than in the U.K., giving more room to the Fed to be more aggressive.

At the time of writing, the GBP/USD trades at the 1.1260 area after hitting its lowest in over 37 years at 1.1211 earlier on the day.

The Monetary Policy Committee (MPC) of the Bank of England decided to raise its interest rates by 50 bps for the second time in a row as five members voted to raise by 50 bps, three members preferred to increase 75 bps and only one member voted to hike the Bank Rate by 25 bps.

In addition, the MPC decided unanimously to reduce the stock of purchased U.K. government bonds, financed by the issuance of central bank reserves, by £80 billion over the next twelve months, in line with what was decided in the August meeting.

On the other hand, the Monetary Policy Summary stated that the MPC will take the actions necessary to return inflation to 2% and that further rate hikes will be decided on a meeting-by-meeting basis, and the scale and pace will reflect the Committee's assessment of the economic outlook and inflation data.

According to the forecasts, the UK GDP is set to decline by 0.1% in Q3, and inflation is expected to peak in the next month at 11%.

Their outlook suggests more persistent inflationary pressures from more robust demand supported by the tight labor market and wage inflation.

The report also stated that the government's announcements of the Energy Prices Guarantees would significantly limit further CPI increases and support the MPC inflation projections to peak in October.

GBP/USD - Technical View

From a technical perspective, the GBP/USD pair holds the short-term negative bias as indicators dive deeper into the negative territory while the price continues to hit lower lows.

GBP/USD daily chart.
GBP/USD daily chart.

If the bearish momentum persists, the following support levels are seen at 1.1211, followed by the 1.1200 psychological area and then the January 1985 low of 1.1100.

On the upside, the bulls must regain the 1.1300 area to improve the short-term picture and pave the way towards 1.1350 and then to the 1.1400 zone.

GBP/USD Falls To Lowest Since 1985 Despite BOE's Rate Hike
 

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GBP/USD Falls To Lowest Since 1985 Despite BOE's Rate Hike

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Comments (1)
Mr Doodl
Mr Doodl Sep 25, 2022 5:57AM ET
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1.12 and 1.11, trash GBP went down through these levels like a hot knife through butter. What a mess! It raises the doubt UK is falling into the category of emerging markets. If BoE doesn't react to GBPs freefall, it will raise the doubt BoE isn't independent.
 
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