The Pound traded 0.3% weaker during the US session, although way down from its intraday highs reached earlier as traders sold the GBP/USD pair amid a disappointing Bank of England monetary policy decision.
Dovish rate hike
Earlier today, the Bank of England hiked rates by 25 bps, bringing the main refinancing rate to 0.75%. However, whispers were for a 50 bps increase, considering the recent uptick in inflation. That did not happen and a sudden dovish surprise came out of the meeting as only 8 out of 9 MPC members voted for a rate hike, while investors expected a unanimous decision.
The GBP/USD pair fell 100 pips after the decision as it was not taken so positively.
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“The messaging around the hike took a notably softer tone, with the MPC not committing as forcefully to future hikes. We continue to expect a hike in May before a long pause to 2023.” analysts at TD Securities said on Thursday.
They continued by saying that a range of factors (BoE repricing, higher oil, rising stagflation risks, diverging monetary policy, and growth expectations) point to a deteriorating backdrop and underperformance against the USD. Therefore, they think that the dovish pivot, and hawkish Fed shift, imply a push below 1.30 for GBP/USD in Q2.
Several US data released today
In the US, data showed that industrial production fell to 0.5% in February, down from 1.4% in January. At the same time, capacity utilization ticked higher from 77.3% to 77.6%, but below expectations of 77.8%.
Additionally, initial jobless claims improved from 229,000 to 214,000, setting the 4-week average at 223,000 from 231,750 previously. Continuing claims also fell to 1.419 million from 1.49 million a week ago.
Moreover, the Philadelphia Fed Manufacturing Survey for March improved sharply, printing 27.4 against 16 scored in February. Finally, housing starts rose 6.8% month on month in February, while building permits declined 1.9% monthly.
Yesterday’s US rate hike failed to spur any demand for the greenback as investors continue to assess the situation in Ukraine as the primary driver of the financial markets.
As long as the GBP/USD pair trades below the key resistance in the 1.3160 – 1.3200 zone, the immediate outlook seems bearish, targeting the psychological 1.30 threshold.