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Bank of England Hikes Rates by 25 Basis Points to 4.5%, Sterling Nudges Higher

Bank of England Hikes Rates by 25 Basis Points to 4.5%, Sterling Nudges Higher

Nick Cawley, Senior Strategist
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GBP/USD Prices, Charts, and Analysis

  • The Bank of England raised the Bank Rate by 25bps as expected.
  • 7-2 vote for the rate hike.
  • CPI inflation is expected to ‘fall sharply from April’.
  • BoE suggests economic activity will be ‘materially stronger than in the February Report’.
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The Bank of England raised the UK Bank Rate by 25 basis points to 4.5%, the 12th consecutive hike in a row. The MPC voted 7-2 for the hike with two members, Swati Dhingra and Silvana Tenreyro, voting for rates to remain unchanged at 4.25%. The BoE said that today’s decision was ‘conditioned on a market-implied path for Bank Rate that peaks at around 4¾% in 2023 Q4 before ending the forecast period at just over 3½%.


The BoE said that further monetary policy tightening ‘would be required’ if price pressures remain persistent, and said that they are ‘continuing to address the risk of more persistent strength in domestic price and wage setting, as represented by the upward skew in the projected distribution for CPI inflation.’ The UK central bank said that they expect CPI to fall sharply from April.

BoE governor Andrew Bailey gave an upbeat outlook for UK growth. The BoE expects UK GDP to be flat in H1 and grow modestly in the rest of the year. ‘Economic activity has been less weak than expected in February, and the Committee now judges that the path of demand is likely to be materially stronger than expected in the February Report, albeit still subdued by historical standards.’

Sterling went into the policy decision trading at 1.2575 against the US dollar. The pair touched 1.2600 post-decision and currently eye the multi-month high around 1.2667/1.2680

GBP/USD Daily Price Chart – May 11, 2023

Chart via TradingView

Retail Traders are Net-Short GBP/USD

Retail trader data shows 37.25% of traders are net-long with the ratio of traders short to long at 1.68 to 1.The number of traders net-long is 3.91% higher than yesterday and 16.30% higher from last week, while the number of traders net-short is 8.39% lower than yesterday and 0.67% 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 GBP/USD – 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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.