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We had the Bank of England last week and as we expected GBP/USD sold off and we are expecting more downside in the coming weeks with any rallies being selling opportunities.

Last Week“The Bank of England raised its main interest rate by 25 basis points to a 15-year high of 5.25%, a 14th consecutive hike as policymakers strive to rein in inflation. The Monetary Policy Committee voted 6-3 in favor of the quarter-point hike, with two members preferring a second straight 50 basis point increase and one voting to keep rates unchanged.” (CNBC)

The Bank of England noted: “The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labor market conditions and the behavior of wage growth and services price inflation.”

The Interest Rate Outlook

In terms of the market, they got too long on the view of the BoE raising rates to +6%, and they're not focused on the state of the UK economy which the BoE is aware of and is worried about the coming recession. The BoE wants to avoid another rate hike if possible and they were not particularly hawkish in our view – In terms of our view of future rate hikes the view below neatly summarizes our view.

After around 5 percentage points of rate hikes, the BoE now sees monetary policy as restrictive. This indicates that the BoE probably considers the rate peak not to be too far away, especially since the BoE's updated projections indicate weaker growth compared with the May projection and a weakening of the labor market from mid-2024. We expect a further and final rate hike in September; the rate peak should then be reached at 5.50%” (COMMERZBANK) 

Economic Growth

The UK economy could face a recession and the US economy is doing far better which we can see on the chart below:


Sentiment Analysis

Speculators built up their biggest long position since 2014 into recent highs and while the latest COT report shows some lightening of positions they still remain elevated in historical terms and commercials remain heavily short which points to minor upside and plenty of downside in our view.

cotbase british pound futures cot net positions 9



Technical Analysis

The key levels of support and resistance can be seen on the chart below



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