Bank of England raises interest rates amid inflation concerns

By Camilo Botia, CSC?

The Bank of England increased its interest rate for the 14th time, reaching 5.25%, with a clear warning that the policy would remain tight. As a result, the pound initially experienced losses and portrayed uncertainty on Thursday while waiting for NFP data to be released.

The Bank of England raised its interest rates to the highest level in 15 years, cautioning that the ongoing fight against inflation might necessitate stricter borrowing conditions for an extended period. The Monetary Policy Committee indicated a possibility of further measures if inflation persisted, while also lowering growth forecasts for the next two years and revising the inflation outlook for the medium term.

This year, the British Pound saw a significant surge due to the noticeable discrepancy in the expected future monetary policy direction, alongside better-than-expected economic growth data. However, the pound's momentum has recently weakened following the release of the latest inflation numbers. Despite the warning of longer-than-expected tightening, there are indications that the bank is becoming slightly more relaxed about its future course of action to avoid overtightening the economy.

So far, the GBPUSD has fallen more than 3% after reaching its highest level in 2023 at $1.3142. Despite the rating downgrade in the U.S. last Tuesday, the U.S. dollar has gained strength as demand increased for safe-haven assets, causing the Sterling to retreat.

The latest ADP data in the American economy showed that the labor market remains strong in America, and the NFP data will help confirm whether the U.S. is approaching a “soft landing,” having a substantial impact on the British Pound and increasing volatility during the session.

The closest support level for the GBPUSD is at $1.2528, and beyond that, the 200-day moving average at $1.2309. The MACD indicator shows a significant bearish movement in the British Pound since July 20, complemented by the signal presented from the Parabolic SAR on July 21 when it accumulated three dots above the candlesticks, showing a bearish signal as well.

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.

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