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The Bank of England raised interest rates for the second time in the last 12 months and to the highest level since the financial crisis. The MPC voted to increase interest rates from 0.5% to 0.75%, but the British Pound was uninspired by the rate hike and has slumped to new 2018 lows.
The BOE did accompany its rate hike with a statement discussing more hikes to come and an increase in its growth forecasts. But it was the press conference from Mark Carney that saw the pound drop once more as it became clear the BOE stands ready to reverse the hike in the case of an increasingly likely ‘No deal’ Brexit.
In the latest BOE inflation report, the BOE forecasted consumer price to rise by 2.2% in 2019 and 2.1% in 2020. Currently the inflation rate is down to 2.4% from 3% in January 2018. Current data and the forecasts suggest that the BOE will need less effort to achieve their 2% target moving forward.
As long as the Brexit negotiations present a tangible risk, the Pound will struggle to post major gains. Until we see some evidence that the Chequers plan or a soft Brexit alternative will work, the pound will be under pressure.
GBPUSD has lost significant ground. The technical pattern remains bearish. In the short-term, the big psychological level 1.3000 will dictate the market sentiment. While we trade above the round number expect more consolidation, but a daily break and close below 1.3000 will open up the door for more weakness.
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