- GBP/USD advances strongly and gains 0.17% on Thursday.
- The Bank of England raised the bank interest rate to 1.75% in a vote of 8-1.
- Bailey and company acknowledged that the UK will enter a recession from the end of 2022.
- Initial jobless claims in the US increased by 260,000 more than expected, as the labor market eases.
The GBP recovered some ground against the USD after the Bank of England raised rates by 50 basis points, the biggest hike in 27 years, while warning that the British economy would slip into recession in the second half of the year. That said, the GBP/USD traded in a volatile session, reaching a daily high of 1.2212 before falling to a daily low of 1.2065. At the time of writing, GBP/USD is trading at 1.2165, up 0.16%.
GBP/USD trims losses after Bank of England hike
On Thursday, the Bank of England raised the bank interest rate to 1.75% in an 8-to-1 vote, dissenting from Sylvana Tenreyro, who supported a 25 basis point hike. The Bank of England sees the UK enter a 15-month recession later in the year, projecting GDP to fall 1.5% in 2023.
Regarding inflation, the BoE updated its forecast, which increased to 13% in the fourth quarter of 2022, more than the 9.4% estimated in June, and recognized that it will remain high during the rest of 2022 and 2023, while that consumption weakens even more. In addition, the BoE announced that it would start reducing its balance sheet by £10bn per quarter from next month.
Later, following the BoE decision, US initial jobless claims for the week ending July 30 rose by 260,000, above an estimated 259,000, a sign that the labor market is losing . Additionally, the US trade balance narrowed the US deficit to -$79.6bn, versus estimates of -80.1bn, while exports increased compared to imports.
That said, GBP/USD settled just below the 50 day EMA after a volatile session of 150 points. Although it remains below its daily moving averages (DMA), the Relative Strength Index (RSI) is pointing higher in bullish territory, keeping GBP/USD buyers hopeful that prices will rise.
To the upside, the next resistance for GBP/USD would be 1.2188, the 50 day EMA. On the downside, the first support would be 1.2100.
What to watch out for
In the UK, the Halifax House Price Index for July will be released, along with the BBA Mortgage Index. As for the US, the economic calendar will reveal non-farm payroll figures for July, forecast at 250,000, down from 372,000 in June. The unemployment rate is expected to remain unchanged at 3.6%.
GBP/USD key technical levels
Source: Fx Street
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