GBP/USD nosedives towards 1.2330s post-BoE 25-bps hike, and will the UK hit a recession in 2023?
|
- The Bank of England hiked rates to 1%, though slashed UK’s economic growth in 2023.
- The US and UK central bank’s expressed concerns about China’s Covid-19 crisis, which threatens to disrupt supply chains, consequently triggering high inflation.
- GBP/USD Price Forecast: To fall towards June 2020 swing lows around 1.2251.
The British pound plummets on Thursday after the Bank of England (BoE) hiked 25-bps interest rates in a 6-3 split decision. However, the bank’s projections of a probable UK recession in 2023 shifted sentiment negatively, spurring a 280-pip drop from near weekly highs from 1.2630s to below 1.2350. At around 1.2330s, the GBP/USD reflects the scenario post-BoE decision.
As previously mentioned, the BoE lifted rates to the 1% threshold. Albeit widely expected, what dented the market sentiment is that the “old lady” slashed its growth forecasts, with 2023 showing a contraction of 0.25% vs. 1.2% on its previous projections. That, alongside the central bank’s worries about China’s renewed lockdowns, added to the Fed’s concerns on the same issue.
On Wednesday, in its monetary policy statement, the Fed mentioned that “… COVID-related lockdowns in China are likely to exacerbate supply chain disruptions,” while the Bank of England said that it was “worried” about renewed Covid-19 lockdowns and added that threatens to hit supply chains again and add to inflation pressures.
Additionally, in the Asian session, China’s Caixin Services PMIs printed a dismal figure, at 36.2 vs. 42.1 expectation, portraying the effects of April’s lockdowns in Shanghai.
Meantime, the US Dollar Index, a gauge of the greenback’s value, is trimming Wednesday’s losses and reached a new YTD high at around 103.942, though at the time of writing is sitting around 103.855, gaining 1.31%. Also, the US 10-year Treasury yield reclaimed the 3% threshold and is rallying 15 basis points, currently at 3.090%, underpinning the greenback.
On Thursday, the US economic docket featured Initial Jobless Claims for the week ending on April 29, which increased to 200K from 182K foreseen by analysts. The report notes that labor costs surged to 11.6%, showing the tightness of the job market.
GBP/USD Price Forecast: Technical outlook
The GBP/USD is under heavy selling pressure, and once it broke below July’s 2020 cycle lows around 1.2479, it opened the door for further losses. The MACD indicator shows that the MACD-line is aiming downwards, signaling that the downtrend is accelerating. With no immediate support nearby, the GBP/USD’s following line of defense would be the June 2020 swing lows around 1.2251.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.