BOE expected to raise interest rates once more

The Bank of England (BoE) is facing the challenge of controlling a higher inflation rate in Britain compared to the United States and the euro zone. Despite having raised borrowing costs 12 times since late 2021, the BoE is attempting to avoid pushing the economy into a recession.

It is expected that the BoE will further increase rates from 4.5% to 4.75% on June 22. Investors see a 60% chance of the Bank Rate climbing to 5.5% later this year, and this stronger-than-expected inflation data has led to market speculation that interest rates will peak at 5.5%.

In April, British consumer price inflation fell to 8.7% but remained higher than the BoE's forecast of 8.4%. Core inflation, which excludes certain prices, and price increases in the services sector reached their highest levels since 1992. However, analysts predict that headline CPI will slow to 3.7% in the fourth quarter of this year and be slightly above the BoE's target of 2% within a year, as last year's surge in energy prices is excluded from the figures. The BoE finds comfort in the fact that inflation expectations have been decreasing, with public expectations for inflation over the next five to 10 years dropping to 3.5%, the lowest in almost two years.

In May, British house prices dropped for the first time in 11 years, and weak growth in the construction sector was partially offset by other sectors, highlighting some resilience in the economy. Additionally, British retail sales growth slowed to a seven-month low in May due to high food prices, prompting consumers to reduce spending on non-essential items.

According to surveys and data, there have been some recent signs of easing pressure. More individuals are seeking employment, which has lowered Britain's inactivity rate and reduced the need for employers to raise wages to attract workers. However, Britain's economy remains fragile, and the recent increase in expectations of higher borrowing costs may potentially push it into a contraction this year.

Shifting focus to the United States, the dollar weakened as U.S. Treasury yields declined following a surge in weekly jobless claims. The number of Americans filing new claims for unemployment benefits reached its highest level in over 1.5 years. Traders interpreted this as a potential indication that U.S. interest rates may soon peak.

Meanwhile, job growth in the U.S. has been driven by the services sector, including leisure, hospitality, healthcare, and education. However, there are concerns that layoffs, which were initially concentrated in the technology sector and interest rate-sensitive industries, are spreading to other segments of the economy.

These developments led to a decrease in the value of the U.S. dollar against a basket of currencies. Attention now turns to central bank meetings in the coming week. The Fed's decision will be closely watched, with expectations leaning toward a pause in rate hikes, although there is a 25% chance of a 25 basis point rate increase in June.

On the other hand, the Bank of Canada's surprise interest rate hike has increased the likelihood of the Federal Reserve raising rates at its meeting next week. These developments, along with the rate rise by the Reserve Bank of Australia, have led to increased expectations that the Federal Reserve will follow suit. As a result, the pound may fluctuate within the range and be weaker than the US dollar during this period.

Data for Technical Analysis (5H) CFD GBP/USD

Resistance : 1.2561, 1.2564, 1.2569

Support : 1.2551, 1.2548, 1.2543                              

5H Outlook

Source: Investing.com                              

Buy/Long 1 If the support at the price range 1.2546 - 1.2551 is touched, but the support at 1.2551 cannot be broken, the TP may be set around 1.2561 and the SL around 1.2542, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2561 - 1.2566, TP may be set around 1.2574 and SL around 1.2547, or up to the risk appetite.      

Sell/Short 1 If the resistance at the price range 1.2561 - 1.2566 is touched, but the resistance 1.2561 cannot be broken, the TP may be set around 1.2548 and the SL around 1.2570, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2546 - 1.2551, TP may be set around 1.2538 and SL around 1.2565, or up to the risk appetite.      

Pivot Points Jun 09, 2023 03:39AM GMT

Sources: Investing 1, Investing 2