The Bank of England has not said the last word

The Bank of England raised interest rates for the 14th time. This time there was movement lower than the previous one and amounted to 25 basis points. It can be said that part of the market was disappointed with the smaller step than before. The pound lost only a moment after the decision. At the end of the day GBP / USD rate was above the level of 1,27. The quotes are in a very interesting place.

There was also a lot going on in the oil market. This has grown after reports that Saudi Arabia intends to extend the period of voluntary production cuts. Today we will get to know the report from the US labor market.

The Hawks Bank of England

The Bank of England sounded hawkish yesterday. There was a statement that interest rates would be restrictive for long enough, all for that bring inflation back to target. Unfortunately, this has not been falling as strongly as in other economies in recent months. It is true that the core indicator reached its peak (over 11%) in autumn 2022 and currently shows 7,9%. which still gives a high level. The base measure has so far surprised with its persistence and only the last reading showed a slight decrease to 6,9 percent. y/y

The market at the moment assumes that two more rate hikes are very real. The third one, the December one - here the chances are determined at about 45 percent. This means one thing, the BoE will still be restrictive, although there is a high risk that the market will have to change its valuation at some point because Bank of England may not meet these expectations and change its rhetoric, which will be followed by different actions. Earlier, however, we would have to receive a stronger fall in inflation, as this factor may lead to the institution softening its tone.

Interesting arrangement on the 'cable'

GBPUSD is currently in an interesting place. The declines that have been going on since July 14 have reached the horizontal support, which was marked by the peak from the spring of this year and the low from the end of June. Two more Fibo internal retracements (38,2 percent and 61,8 percent) of two growth impulses (from March and from the end of May 2023). The layout of the last downward correction itself is also very regular. If we add to this the visible price divergence with the stochastic oscillator chart, an interesting pattern is created that indicates that this is around 1,26 a local low has formed GBP/USD pairs.

The oil market has also become interesting. Reports that Saudi Arabia will extend voluntary production cuts by 1 million barrels a day by the end of September, the Brent variety rose above USD 85 and gained over 2,3 percent. The reduction may be extended and deepened in the future - we also received such a message. This fundamental factor will probably increase the supply deficit forecast by the EIA in the second half of the year.

Source: OANDA TMS Brokers