When is the Bank of England interest rate 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 11:00 GMT and looks poised to hike rates for the sixth time since December to rein in soaring inflation. In fact, the headline UK CPI surged to a 40-year high and the BoE had said in June that it would act forcefully if inflation pressures became more persistent. Hence, the broader consensus is that the UK central bank would raise benchmark interest rates by 50 bps - the most since 1995 - to 1.75%, or the level since late 2008.

Apart from this, the central bank's inflation and growth forecasts will gather market attention. According to Dhwani Mehta, Senior Analyst at FXStreet: “The BOE’s 11% peak inflation forecast made in May will likely be revised upwards at the August meeting. The economic uncertainty, courtesy of the European gas crisis and China’s covid lockdowns, could lead the central bank to downgrade its growth forecasts.”

Investors would then shift the focus to the post-meeting press conference, where comments by BoE Governor Andrew Baily would be scrutinized for clues about future rate hikes amid growing recession fears. This, in turn, should infuse a fresh bout of volatility around the British pound and provide some meaningful impetus to the GBP crosses.

How could it affect GBP/USD?

Ahead of the key central bank event risk, jumbo BoE rate hike expectations assisted the GBP/USD pair to regain positive traction on Thursday amid modest USD weakness. The move, however, is fully priced in the markets, which might have already set the stage for some disappointment. Furthermore, the central bank could strike a dovish tone and acknowledge an economic downturn. This would be enough to weigh heavily on sterling.

As Eren Sengezer, European Session Lead Analyst at FXStreet. explains: “A 50 bps rate hike by itself could trigger a 'buy the rumour sell the fact' reaction and cause the British pound to weaken against its rivals. In that case, investors will pay close attention to the vote split. If the policy statement reveals that some policymakers wanted to raise the rate by 75 bps, this could be seen as GBP-positive development. On the other hand, the sterling could face additional selling pressure in case markets see that some policymakers preferred a 25 bps hike.”

Eren also outlines important technical levels to trade the GBP/USD pair: “1.2160 (Fibonacci 23.6% retracement of the latest uptrend) aligns as a key level for the pair. In case this level stays intact as resistance, additional losses toward 1.2100 (psychological level, Fibonacci 38.2% retracement) and 1.2075 (200-period SMA) could be witnessed.”

“On the upside, stiff resistance seems to have formed at 1.2200 (psychological level, 20-period SMA) ahead of 1.2275 (the end-point of the uptrend) and 1.2300 (psychological level),” Eren adds further.

Key Notes

  •  BOE Rate Decision Preview: Bailey to follow Powell’s footsteps with a dovish hike

  •  Bank of England Preview: Bailey to deal blow to pound with dovish hike, what to watch for

  •  GBP/USD Forecast: Pound could weaken in case BOE forecasts recession

About the BoE interest rate decision

The 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.