British Pound (GBP) Volatile as Bank of England Hikes by 50 Basis Points

GBP/USD Prices, Charts, and Analysis

• UK Bank Rate hiked by 50 basis points to 5%.
• BoE will hike further if inflationary pressures persist.

The Bank of England lifted the Bank Rate by half-a-percentage point today to 5%, the highest level in 15 years. The committee voted by 7-2, with Swati Dhingra and Silvana Tenreyro voting to keep rates at 4.5%. The MPC said that they would ‘continue to monitor closely indications of persistent inflationary pressures in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.’

The BoE added that they did expect inflation to fall ‘significantly this year’ due to lower energy prices, services CPI is projected to remain broadly unchanged, while food price inflation is projected to fall further in coming months.

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UK Core Inflation Breaches 7% as Headline Beats Estimates, GBP/USD Bid

Sterling jumped on the release but has since moved back to pre-release levels. GBP/USD touched 1.2842 before falling back to trade around 1.2750 in choppy market conditions.

GBP/USD One-Hour Price Chart – June 22, 2023

Short-dated UK government bond yields slipped a handful of basis points on the release but look set to push higher.

UK 2-Year Gilt Yield One-Hour Chart – June 22, 2023

GBP/USD Retail Traders are Net-Short Cable

Retail trader data show 36.68% of traders are net-long with the ratio of traders short to long at 1.73 to 1.The number of traders net-long is 5.89% higher than yesterday and 7.29% higher from last week, while the number of traders net-short is 3.18% lower than yesterday and 1.30% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/USD price trend may soon reverse lower despite the fact traders remain net-short.

What is your view on the British Pound – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.