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GBP/USD Finds Temporary Support From BoE Rate Hike

The GBP/USD has found support this Thursday after the Bank of England surprised not a few people by hiking interest rates in the UK by 50 bps. The market expectation had started to shift toward the 75-point rate hike mark, and indeed, the vote came through as the closest possible split decision, with others all favouring the more hawkish position.

So where does the Pound go from here? In the first place, the rate hike was mildly bullish for the GBP/USD, and its slide into a 37-year-old abyss has halted, even if temporarily. The market expects the BoE to come through with another 50 bps rate hike in November. But this will be on the back of an earlier pessimistic outlook by the bank and a cost-of-living crisis.

Would this rate hike allow the Pound to recover more ground from now on? It isn’t very likely. The last fundamental trigger for the week is the Flash Manufacturing/Services PMI data for August 2022. The U S Fed Chair Jerome Powell will also be giving a speech later Friday. 

GBP/USD Forecast

The intraday bounce has helped to keep the pair toward the 1.11765 price pivot, despite the drop below the 27% Fibonacci extension level from the price high of 26 August to the swing low of 5 September at 1.13323. 

Any further reprieve on the pair that follows a successful breach of 1.13323 will first encounter the 1.14538 price mark as initial resistance, where the 5 September low and 20 September high are located. If the bulls uncap this barrier, 1.16566 becomes the next target (29 August low). 1.18061 and 1.19014 (26 August high) are additional barriers to the north which become available if the retracement rally continues. 

On the flip side, a continuation of the drop puts the 1.11765 support in the crosshairs of bears. This comes from the continuation of the breakdown move at the current levels. New mutli-decade lows will become available once there is further price deterioration.

GBP/USD: Daily Chart