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GBP/USD dives to fresh weekly low, bears flirt with 1.2100 mark post-BoE


4 August 2022

GBP/USD turns lower for the third straight day in reaction to a dovish BoE policy decision. The BoE raises interest rates by 50 bps and indicates that policy is not on a pre-set path. Investors now look forward to the post-meeting press conference for a fresh impetus. The GBP/USD pair struggles to find acceptance above the 1.2200 mark for the second straight day on Thursday and witnessed aggressive selling after the Bank of England announced its policy decision. The pair turns lower for the third straight day and momentarily slips below the 1.2100 round figure, hitting a fresh weekly low in the last hour.

As was widely expected, the BoE's Monetary Policy Committee (MPC) voted unanimously to raise the benchmark rate by 50 bps - the most since 1995 - to 1.75%, or the highest level since late 2008. The jumbo rate hike, however, was fully priced in the markets and thus, prompted a typical 'buy the rumour sell the fact' kind of trade around the British pound.

In the accompanying monetary policy statement, the UK central bank indicated that monetary policy is not on a pre-set path. This, in turn, suggests that the BoE is more likely to slowdown the pace of its tightening cycle amid growing recession fears. This is reaffirmed by the fact that the BoE now estimates the GDP to fall by 0.2% during the second quarter.

The BoE further adds that risks surrounding projections are exceptionally large at present. The immediate reaction, meanwhile, suggests a dovish market assessment and supports prospects for a further depreciating move for the GBP/USD pair. That said, traders are likely to wait for the post-meeting press conference before placing fresh directional bets.

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