GBP/USD: interest rate hike expected
Published this morning and earlier this week, the PMI indices for the UK services and manufacturing sector were worse than expected and weaker than previous values. Although the current PMI values (52.6 and 52.1, respectively) are above the 50.0 mark, which separates the increase in activity from the slowdown, the relative decline in PMI figures has a negative impact on the mood of the buyers of the pound, especially on the eve of the BoE meeting. It will end tomorrow with the release of the interest rate decision at 11:00 am (GMT).
The Bank of England's interest rate is widely expected to be raised by 50 basis points (to 1.75%), the biggest monetary tightening since 1997. Also at the same time, the minutes of the Monetary Policy Committee will be published, which contains information on the distribution of votes “for” and “against” the increase / decrease in the interest rate, and the report of the Bank of England on monetary policy, which contains an assessment of the economic situation, prospects economy and inflation.
At 11:30, the head of the Bank of England, Andrew Bailey, will speak with comments and with his vision of the prospects for the bank's monetary policy. The soft tone of his statements and a softer decision of the Bank of England on the level of interest rates will cause a sharp weakening of the pound.
But the increase in the interest rate, as planned by 0.50%, is also unlikely to strongly and long-term support the pound. Theoretically, an increase in the interest rate (in normal economic conditions) should have a positive impact on the quotes of the national currency. However, it is difficult to name the current economic situation in the UK, and in the world as a whole, normal, given the accelerating inflation, high energy prices, and the tense geopolitical situation. And these problems are only getting worse.
As for the dynamics of the GBP/USD, at the time of publication of the article, the pair is traded near the 1.2205 mark, through which an important resistance level passes (for more details, see "GBP/USD: technical analysis and trading recommendations_08/03/2022"). A break of this resistance level will strengthen the positive dynamics of the GBP/USD, and the upward correction will continue towards the resistance levels 1.2640, 1.2800.
As for the dollar, it was again under pressure today after yesterday's strong growth against the backdrop of a visit to Taiwan by Speaker of the House of Representatives of the US Congress Nancy Pelosi. Nevertheless, despite China's negative reaction to this visit, it is obvious that the apocalyptic scenario did not materialize, and the markets calmed down a bit, reducing interest in buying a protective dollar.
Today, futures for the DXY dollar index are traded near the 105.91 mark, again falling below the local support level 106.00.
Nevertheless, the positive dynamics of DXY remains. The first signals for the resumption of long positions in DXY futures will be the breakdown of the local resistance levels 106.00, 107.00.