- GBP/USD has recovered from post-BoE lows at 1.3100 and is up again as high as 1.3150.
- The pair has yet to return to pre-BoE levels at 1.3200 as traders ponder the dovish rally.
- The BoE’s dovishness coupled with global economic headwinds as a result of the Russo-Ukrainian conflict will continue to weigh on the pair.
While GBP/USD has modestly regained footing in recent trading after rallying off support at the 1.3100 level from the start of the US session to climb back above 1.3150 amid a weakening US dollar, GBP/USD has failed to recover to pre-BoE dovish level above 1.3200. However, the pair is currently trading at the 1.3160 area, up 0.1% on the day and is no longer the worst performing G10 currency of the day, as it was immediately after the BoE. The US dollar has taken that crown in recent trading, despite a strong weekly US jobless claims report and the results of a Philadelphia Fed inflation survey from March that reaffirmed the economic themes that motivated the Fed to become more aggressive on Wednesday.
Despite recent USD weakness, analysts have cooled on GBP in the wake of the latest BoE policy announcement and this may affect the pound’s ability to get back above 1.3200 this weekend. “In contrast to both the Fed and the ECB, the BoE delivered a relatively dovish message to investors today,” said a senior analyst at Aviva Investors, adding that “there was more emphasis on slower growth and its impact on prices.” homes in the future.” Investors also interpreted a vote by one of the BoE’s rate setters to put rates on hold and newly drafted guidance on further rate hikes as more dovish than expected.
Money markets have lowered BoE tightening bets for 2022, now seeing the bank raising rates another four times in 2022 instead of another five as expected before the policy announcement. Many analysts view these tightening expectations as too tight and out of sync with the BoE’s new statement that “further modest tightening may be appropriate in the coming months.” Dovish messages from the BoE seem likely to act more as a headwind for sterling, particularly against the US dollar amid a more hawkish Fed. With the pair failing to get back above a key resistance area in the upper 1.3100 now for the second consecutive weakness, traders may now be raising bets on a move back to yearly lows in the 1.3000 area.
Of course, geopolitics will be a key driver of sentiment in the short term, as has been the case over the past few weeks. Reports on the possibility of a peace agreement between Russia and Ukraine have been mixed/contradictory. While a peace deal (not the base case for most analysts) would be a positive surprise that could boost GBP/USD in the short term (via USD weakness/GBP strengthening amid appetite for risk), it is unclear whether this would lead to a lasting rally. Certainly the West is going to continue efforts to decouple economically from Russia (via sanctions etc.), which means severe disruption to the global economy (to which the UK is more exposed than the US). USA) is not going to be cured with a peace agreement.
Additional technical levels
Source: Fx Street
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