GBPUSD Craters to 2-Yr Lows After BoE Disappointment
05 May 2022
The GBPUSD pair, also known as the cable, was down nearly 2% during the US session on Thursday, reacting to the latest Bank of England monetary policy decision.
At the time of writing, it traded at the 1.24 level for the first time since June 2020.
BoE not hawkish enough
The Bank of England boosted interest rates by 25 basis points to 1.0% on Thursday. Six of the bank's nine MPC members backed the 25 basis points increase, while three requested a higher 50 basis-point increase. The rate rise was predicted, but the vote split was more hawkish than anticipated, according to a Reuters poll, which expected eight members supporting a 25 basis point boost and one voting no.
Furthermore, the subsequent monetary policy document hinted that some further monetary tightening may be justified in the coming months.
Two MPC members, however, believe that rate guidance is inadequate since the risks to GDP and inflation are more evenly distributed. Furthermore, the Bank of England now expects the UK GDP to decline by 0.25% in 2023, signaling a dovish shift.
Outlook remains negative
The long-term weekly chart wants to tell us that the bearish momentum remains intact, with the resistance located near 1.2680. As long as GBPUSD trades below that level, the long, medium, and short-term outlooks all point to further weakness.
The next target in this leg lower could be at June 2020 lows near 1.2250. Despite oversold conditions, any rallies are quickly sold-off, confirming the bearish pressure for now.