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 12:00 GMT. The UK central bank is widely expected to hike interest rates for the third straight meeting, though market participants remain divided over the possibility of a 50 bps rise. The UK consumer prices rose at the fastest annual pace in nearly 30 years last month and the war in Ukraine means that inflation is going to stay higher for longer, prompting the BoE to act further. That said, an uncertain outlook in the wake of Russia's invasion of Ukraine and concerns over growth could see policymakers adopt a more flexible approach.

As analysts at ING explain: “We suspect the BoE will opt for another 25bp rate rise, rather than a larger 50bp move. Markets are once again pricing six rate rises this year, and comments from officials have offered some modest pushback against these expectations. Our own view is that after a couple more hikes, the committee is likely to pause and put greater emphasis on the deteriorating growth backdrop. After all, such a sharp rise in oil and gas prices is more likely to be medium-term disinflationary, even if it keeps headline inflation rates higher this year.”

How could it affect GBP/USD?

Heading into the key central bank event risk, the GBP/USD pair climbed to the 1.3200 neighbourhood, or a one-week low amid the prevalent US dollar selling bias. A more hawkish shift would be enough to provide an additional boost to the British pound and set the stage for an extension of the pair's recent bounce from the key 1.3000 psychological mark. Conversely, a 25 bps rate hike could disappoint bullish traders, though the optimistic market mood should continue to undermine the safe-haven buck and lend support to the major.

Meanwhile, Eren Sengezer, Editor at FXStreet, offered a brief technical outlook for the GBP/USD pair: “The technical picture suggests that the pair remains bullish in the near term with the Relative Strength Index (RSI) indicator on the four-hour chart staying near 60. Additionally, GBP/USD trades above the 20-period and the 50-period SMAs on the same chart.”

Eren also outlined important technical levels to trade the major: “On the upside, 1.3200 (psychological level, Fibonacci 50% retracement of the latest downtrend) aligns as the first technical resistance. In case a four-hour candle closes above that level on a hawkish BOE hike, the next bullish target is located at 1.3250 (100-period SMA, Fibonacci 61.8% retracement) before 1.3300 (former support).”

“Supports could be seen at 1.3150 (Fibonacci 38.2% retracement), 1.3100 (psychological level, Fibonacci 23.6% retracement, 50-period SMA) and 1.3075 (20-period SMA),” Eren added further.

Key Notes

  •  BOE Interest Rate Decision Preview: A hat-trick and a difficult balancing act

  •  GBP/USD Forecast: Can a 25 bps BOE hike lift the pound?

  •  GBP/USD justifies falling wedge breakout to cross 1.3150 with eyes on BOE, Ukraine

About the BoE interest rate decision

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.