When is the BoE monetary policy decision and how could it affect GBP/USD?

BoE Monetary Policy Decision – Overview

The Bank of England (BoE) is scheduled to announce its monetary policy decision this Thursday at 11:00 GMT and looks poised to hike rates for the fifth consecutive time to rein in soaring inflation. It is worth mentioning that the headline UK CPI surged to a 40-year high of 9% in April, fueling concerns about a major cost of living crisis in the country. Moreover, the BoE inflation to rise above 10% later this year.

That said, the incoming UK macro data, especially the latest GDP report that showed that the economy contracted by 0.3% in April, suggests that the BoE may opt for a cautious approach to raising interest rates. Hence, the market focus will remain glued to the MPC vote distribution and the accompanying monetary policy statement. In absence of the post-meeting press conference, the central bank’s forward guidance will be closely examined.

As Yohay Elam, Senior Analyst at FXStreet, notes: “The Bank of England is between the rock of elevated inflation and a hard place – potentially being the first developed economy to experience a cost-induced recession. I see the BOE's move as a dovish hike, a bearish outcome for the pound.”

How could it affect GBP/USD?

Heading into the key central bank event risk, the GBP/USD pair continued with its struggle to find acceptance above the 1.2200 mark and edged lower on Thursday amid resurgent US dollar demand. According to Yohay Elam, the British pound is unlikely to gain any meaningful traction and is more likely to fall even further.

“A faster rate increase would likely have two drivers. First, the BOE would try to catch up with other central banks such as US Federal Reserve. Markets would see through that and dismiss it as being disingenuous. Secondly and more importantly, it would be an attempt to crush inflation while the BOE has room to move – before the recession strikes. In other words, it would be seen as increasing borrowing costs now to have more room to cut them later down the line,” Yohay explained.

Meanwhile, Eren Sengezer, Editor at FXStreet, offered a brief technical outlook and outlined important technical levels to trade GBP/USD: “The pair was last seen trading near 1.2120, where the 20-period SMA on the four-hour chart and the Fibonacci 23.6% retracement of the latest downtrend align. In case this support fails, additional losses toward 1.2050 (static level) and 1.2000 (psychological level) could be witnessed. Meanwhile, the Relates Strength Index (RSI) indicator on the same chart stays below 50 despite Wednesday's rebound, suggesting that buyers remain hesitant to commit additional gains in the near term.”

“On the upside, stiff resistance is located at 1.2200 (Fibonacci 38.2% retracement). A four-hour close above that level could be seen as a bullish development and open the door for an extended rebound toward 12300 (Fibonacci 50% retracement) and 1.2350 (50-period SMA),” Eren added further.

Key Notes

  •  BOE Preview: Why GBP/USD set to suffer even in response to a 50 bps hike, a lose-lose event

  •  BOE Preview: A surprise 50 bps rate hike on the table?

  •  GBP/USD Forecast: Pound could attack 1.2200 on a hawkish BOE surprise

About the BoE interest rate decision

The BoE Interest Rate Decision is announced by the Bank of England. If the BoE is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the GBP. Likewise, if the BoE has a dovish view on the UK economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.