GBPUSD plummets to two-week lows below 1.1170, courtesy of BoE’s dovish language, UK recession fears

• The British Pound tanks more than 200 pips weighed by BoE’s Governor Bailey, saying that rates would be lower than market expectations.
• The American Dollar continues to rise against most G8 currencies, bolstered by Fed commentary and US Services PMI.
• GBPUSD traders brace for the October US Nonfarm Payrolls report on Friday.

The GBPUSD continues to drop during Thursday’s North American session, following rate hikes by the Bank of England (BoE) and the Federal Reserve (Fed), lifting overnight rates by 75 bps. However, the interest rate differential favors the American Dollar to the detriment of the Pound Sterling. At the time of writing, the GBP/USD is trading at 1.1163, plunging to fresh two-week lows, down almost 2%.

The BoE Governor Bailey pushed back against peaking rates around 5%, and the GBPUSD sank

The BoE’s decision further than to help the British Pound weakened the currency, as the central bank pushed back against market expectations to hike the Bank Rate towards 5%. The BoE Governor Andrew Bailey said, “Further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets.” The central bank added that the UK economy entered a recession in the three months through September, with output falling an estimated 0.5%. The BoE expects a “long-lasting recession” will hit the UK, and the duration would depend on how high the BoE hike rates.

In addition, the lack of a fiscal plan, as the new Prime Minister (PM) Rishi Sunak delayed Chancellor’s James Hunt plan, as Sunak, a previous finance minister, wants to have some input regarding the UK’s new budget.

The US Dollar extends its gains propelled by upbeat US economic data

Elsewhere, the US Dollar remains underpinned by the Federal Reserve Chair Jerome Powell’s hawkish commentary, saying that rates would be higher than September’s forecast. Data-wise, the US economic calendar revealed that business activity in the services sector, as reported by the ISM, decelerated to 54.4 from 56.7 in September, suggesting the economy is cooling. Concerning the US labor market, the US Department of Labor reported Initial Jobless Claims for the week ending on October 28 were lower than expected and rose by 217K vs. 220K forecasts

GBPUSD Key Technical Levels