Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

The vast majority of retail client accounts lose money when trading CFDs.

You should consider whether you can afford to take the high risk of losing your money.

Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail client accounts lose money when trading CFDs.
Important Notice - Fraud awareness
Important Notice - Scam alert
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
ATFX

FCA License No: 760555

ATFX-search-icon
Client Portal
Start trading
rch

Dawn Of The BoE Interest Rate Decision

This week was known as the "central bank super week," as many central banks were scheduled to announce their interest rate decisions. The market expected the Bank of England to raise interest rates by 75 or 50 basis points. Although the August UK consumer price index (CPI) fell to 9.9%, which was lower than the expected 10.2%, the BoE could not relax after the announcement of the US Federal Reserve’s 75 basis points interest rate hike decision. This is because the Bank of England had to keep up with the Fed to protect the British pound from falling further against the US dollar. Therefore, the market’s focus this week was the multiple interest rate announcements from leading central banks.cpi

First, investors are not optimistic about the UK’s inflation trends. Not only are economists predicting that the annual inflation rate in the UK will be as high as 15% in 2023, but several investment banks predict that UK inflation could reach much higher levels. A key factor behind the record-high British inflation is the surge in natural gas prices due to the ongoing energy crisis in Europe. Furthermore, the market believes that the interest rate hikes implemented in the UK are not as large as they should be, given the record-high inflation figures. Again, the BoE’s rate hikes are below the Fed's, which could keep GBP/USD under pressure.

In the past month, the pound’s general trend has been downward, but there were signs of a rebound before it resumed its downward trend. Weak economic growth in the UK weighed on the pound’s performance, with recession fears looming over the country, especially as second-quarter GDP contracted by 0.1%. The UK’s manufacturing output and new orders fell over two years. Against the backdrop of the lowest rate hikes, the Bank of England is finding it difficult to raise interest rates aggressively due to the high risk of a recession.gbpusd chart-Sep-24-2022-02-05-53-67-AM

The Fed and other European countries are very firm in raising interest rates compared to the UK. For example, the ECB interest rate hike was 0.75%, raising its main policy rate to 1.25%, the most aggressive tightening measure in 11 years. The Federal Reserve has also hiked interest rates by 0.75% severally this year as it fights inflation. The Fed decided to hike interest rates by 0.75% on Wednesday. Suppose the Bank of England still does not show the courage and determination to raise interest rates and to be as hawkish as the European Central Bank and the Federal Reserve in its interest rate decision tonight. In that case, the sterling's decline may continue for much longer. Some economists have said, "if the British central bank continues to raise interest rates by 50 bps, it is sending a dovish signal, which could hurt the pound.” 

The US dollar, a beacon for raising interest rates, has risen significantly recently, while the pound has been falling. If the market retains a negative outlook on the global economy following another round of aggressive interest rate hikes by central banks, the safe-haven currency, the US dollar, may continue rising. Moreover, according to the Fed’s current position and views, unless there is a clear path for US inflation to fall, the pace of interest rate hikes may not slow down. Hence, there is still room for the dollar to continue rising, driven by interest rate hikes.

From a fundamental point of view, in addition to the Bank of England's interest rate decision, the new British government is expected to announce a mini-budget this Friday to help people cope with the cost of living crisis. However, not many are hopeful at present since it is estimated that the mini budget cannot make up for the negative impact that the interest rate decision may have on the pound.

Last Updated: 22/09/2022

This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell as it does not take into account your personal circumstances or objectives, and should therefore not be interpreted as financial, investment or other advice, or relied upon as such. You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. The market data is derived from independent sources believed to be reliable, however we make no representation or warranty of its accuracy or completeness, and accept no responsibility for any consequence of its use by recipients. Reproduction of this information, in whole or in part, is not permitted.


 

Recent news

Recent news
Dow Jones Targets Resistance Ahead of FOMC Minutes

The Dow Jones Industrial (US30) index is heading for a key resistance level ahead of FOMC ...

EURUSD Recent news
EURUSD Forecast For This Week’s Economic Data

The EURUSD exchange rate faces two days of economic data, and the pair could see volatilit...

Recent news
Oil Looks for Support Following OPEC+ Production

Oil prices were mixed early in the week over reports that OPEC+ was looking at a 500k dail...

Recent news
NZDUSD Continuation Pattern Trending This Week

NZDUSD has found strong support at the 0.5590 level, which should be low in place. Traders...

Recent news
GBPUSD Slips After UK Mini-Budget Announcement

GBPUSD was lower after the latest budget from the UK government. An increase in the energy...