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17.03.202223:14 Forex Analysis & Reviews: Pound plunged into reality: the Bank of England provoked a sharp depreciation

Exchange Rates 17.03.2022 analysis

This week, two central banks raised rates among the world's largest central banks. Following the Federal Reserve, the British central bank reacted in a similar way to accelerating inflation, which, by the way, unlike the US central bank, raises the rate for the third meeting in a row.

The pound was enthusiastically waiting for the outcome of the Bank of England meeting, hoping for a further increase in rates. Although the central bank acted in accordance with market forecasts, increasing the rate by 0.75%, the pound still collapsed. Why?

Firstly, not all members of the Monetary Policy Committee (MPC) voted for a 0.75% rate hike, one voted against it. Deputy Governor John Cunliffe spoke in favor of maintaining rates, as there was a big blow to demand from higher commodity prices. Market players were counting on a unanimous decision to raise the rate. The fact that opponents of further tightening have appeared in the ranks of the MPC is already some kind of bell.

Secondly, despite the rate hike, the Bank of England has softened its wording on the need for further rate increases at subsequent meetings. Apparently, this is a reaction to the current Russian-Ukrainian conflict, the echoes of which will somehow negatively affect the entire global economy.

The Fed, for example, lowered the country's GDP growth forecasts. The Bank of England said that the conflict between Russia and Ukraine is likely to lead to a significant increase in global inflationary pressures in the coming months and disruption of the supply chain.

The pressure on the budgets of British households is likely to be stronger than predicted last month. Although, according to those estimates, it was supposed to be the largest in the last 30 years.

The Bank of England has softened its rhetoric, while continuing to give unfavorable forecasts about inflation in the country. The indicator may reach 8% in April, which is almost a percentage point higher than predicted last month. This is not the limit, according to the central bank, most likely, inflation will go even higher and by the end of the year Britain will be dealing with absolute growth records.

Electricity bills are likely to jump in the fall when regulated tariffs are dropped, in addition to a 50% increase next month.

Investors were betting that the bank rate would rise sharply, to about 2% by the end of this year, but it looks like they will have to "change shoes". The pound had more hawkish expectations, so it is not surprising that it fell after the announcement of the results of today's meeting.

The GBP/USD pair has broken through the bearish channel resistance level. As long as trading goes below 1.3175, you need to be extremely careful. Surpassing this mark will send the quote up with the target of 1.3235. If the pound stays below 1.3175, it will send the rate under 1.3085, which will bring the bears back into the market. Further breaking of the bar 1.3000 is not ruled out. Expected trading range for Thursday is 1.3070-1.3240.

Support is at 1.3065, 1.2990, 1.2945. Resistance is at 1.3185, 1.3230, 1.3305.

Exchange Rates 17.03.2022 analysis

Natalya Andreeva,
Analytical expert of InstaSpot
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