Pound-Dollar Analysis Following the Bank of England’s Decision

Fundamental analysis of pound

The British pound held onto its gains on Friday for the second consecutive day, trading near a ten-week high against the U.S. dollar, as traders digested the results of a week of central bank meetings, during which the Bank of England kept interest rates steady and warned of inflation risks stemming from the Iran conflict.

Liquidity was thin on Friday due to holidays across most of Europe, while the main focus for the pound in the medium term was on the Bank of England’s meeting on Thursday.

The bank outlined a wide range of potential economic impacts of the Iran war, ranging from scenarios that might require a significant interest rate hike to others that might not warrant any increase at all.

Governor Andrew Bailey said monetary policymakers face a difficult decision in the coming months, warning that waiting for clear evidence of inflationary pressures could cause the Bank of England to delay taking any action.

He added that he does not wish to defy market expectations by raising interest rates at least twice this year, describing monetary policy as stable.

Markets expect the Bank to raise interest rates in June and anticipate two 25-basis-point hikes during the Bank of England’s three meetings through September.

However, analysts say uncertainty is high, Morgan Stanley analysts noted that if commodity supplies from the Middle East return to normal in the coming weeks, the likelihood of monetary tightening this year is extremely low, and we believe there will be no chance of a rate hike in June.

However, if the current disruptions in oil and gas supplies persist for months and commodity prices rise again, an interest rate hike becomes highly likely.

Hugh Billey, a member of the Bank of England’s Monetary Policy Committee, also spoke recently.

Billey is responsible for the analysis used by the Bank of England to make monetary policy decisions.

Billey said that Monetary Policy Committee members are in “high agreement” that the war on Iran could be inflationary.

The Monetary Policy Committee discussed whether the recent tightening of financial markets is sufficient to counter the inflationary effects of the energy shock, but there are differing views within the committee regarding the severity of the potential secondary repercussions of the energy shock.

The committee noted that market tightening in response to events in Iran “seems reasonable,” and that we will use the option of raising interest rates as needed.

GBP/USD on the Technical Front

The British pound is currently trading near the $1.3620 level.

As the pair trades within an ascending price channel on the daily chart, it is possible to buy the pair at current prices or if it reaches the 1.3570 support level near the lower boundary of the channel.

We then target 1.3690 as the first target and 1.3690 as the second target.

At that point, the pair may complete the Shark harmonic pattern.

This scenario fails if the pair breaks below 1.3430.