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      GBPUSD: Will GBP Continue Its Robust Growth if BoE Raises Interest Rate Significantly?

      Global InflationInterest Rate Resolution
      Summary:

      The Bank of England (BoE) is due to announce its monetary policy decision on Thursday and is expected to raise interest rates by 50 basis points, the biggest increase since 1995. However, the market appears to be divided over further increases. The focus will therefore be on the near-term policy outlook affecting GBP.

      Sell GBPUSD
      End Time
      CLOSED

      1.21600

      ENTRY PRICE

      1.18900

      TGT PRICE

      1.22950

      SL PRICE

      1.18274 -0.00979 -0.82%

      597

      Points

      Profit

      1.18900

      TGT PRICE

      1.21003

      CLOSING

      1.21600

      ENTRY PRICE

      1.22950

      SL PRICE

      Fundamentals

      The chances of the BoE raising interest rates by 50 basis points on Thursday look high, especially after Governor Bailey's implication. In today's business environment of high inflation and massive central bank interest rate hikes, the 50 basis point hike is no longer considered "massive" or "ultra-massive". However, this is the BoE's long-awaited interest rate policy adjustment of raising interest rates by 50 basis points ever since 1995. Therefore, such an adjustment has a huge significance even if it has been priced in the market. This would bring the BoE's interest rate to 1.75%, but still well below that of the Federal Reserve and many other major central banks.
      In June, the BoE's Monetary Policy Committee voted 6-3 to raise interest rates by 25 basis points. Such a wide margin of votes shows that Thursday's decision will not be unanimous. If a majority wins six or more votes, this would send a strong message that the BoE is prepared to continue raising interest rates and is likely to raise them another 50 basis points in September, which would benefit the GBP in return. However, a close vote of 5 to 4 could lead to a less hawkish outlook on BoE's comments and indicate that the interest rate tightening cycle would come to an end, while the GBP will face a bearish trend.
      Over the past few months, the BoE has come under intense pressure to ease the cost-of-living crisis in the UK, with inflation rising to 9.4% in June from 9.1% in May. Inflation expectations are also accelerating, which will make it harder for the BoE to contain inflation. The danger of accelerating the pace of tightening is that it could plunge the already slowing UK economy into recession. The BoE regards inflation as its public enemy No.1, even if prices are falling. Any indication that the UK is in a recession would reduce sentiment towards the GBP.
      GBPUSD: Will GBP Continue Its Robust Growth if BoE Raises Interest Rate Significantly?_1

      Technical Analysis

      In the European session, the GBPUSD began to recover above 1.2200 and even tested above the 1.2250 resistance. However, it encountered massive bears near the 1.2294 supply zone; The downward correction now starts below the 1.2250 and the 50-hour SMA. It even tested the 1.2135, and it is currently correcting.
      The first major upward resistance is located near 1.2200 and the linked bearish trend line. If there is a clear upward breakthrough above the 1.2200 resistance, the GBPUSD is likely to rise steadily to 1.2250 in the near term.
      On the downside, the initial support is located near 1.2150. The main support is formed near 1.2135. A break below 1.2135 support could even push the GBPUSD below 1.2100.
      Judging from the current trend structure of the GBPUSD, the bulls have looked exhausted under the momentum of buying for several days. There is a further downside risk in its 4-hour chart facing a dynamic adjustment of upward suppression. It is recommended to go short at the highs.

      Trading Recommendations

      Trading direction: Short
      Entry price: 1.2160
      Target price: 1.1890
      Stop loss: 1.2295
      Deadline: 2022-08-17 20:00:00
      Support: 1.2077, 1.2014
      Resistance: 1.2250, 1.2294
      Risk Warnings and Investment Disclaimers
      You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or signal, or any other product is suitable for you based on your investment objectives and financial situation.

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      Eva Chen

      Analyst

      Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.

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