The MPC left Britain’s benchmark interest rate at 0.50% for another month. Yet again, the voices and votes for a rate hike weren’t strong enough and the rate is unchanged despite the rising inflation. GBP/USD makes an initial small dip and recovers quickly.
As in previous meetings, no statement was released. The bank is split three-ways for quite some time. The recent meeting minutes have shown that two members, Andrew Sentance and Martin Weale, are in favor of a rate hike to tackle inflation. BoE governor Mervyn King and the majority of the Monetary Policy Committee opposed a rate hike.
The British economy is in a very fragile situation. According to the initial figures, Q4 was awful – the economy squeezed by 0.5%. There was some hope from the purchasing managers’ indices for January – they all showed a rebound in the economy. Inflation is rising, no matter the performance of the economy. This is mostly “imported” inflation, coming from food prices – food prices which helped fuel the uprisings in the Middle East.
GBP/USD traded at 1.6050 before the announcement. It dipped all the way to 1.60 afterwards, but didn’t breach this all-important support line. Cable held above this line since the beginning of February. Lower support is found at 1.5910, followed by 1.5840. Resistance appears at 1.6110, a line which capped the pair earlier in the day.
Earlier today, British manufacturing disappointed with a drop of 0.1%. A rise of 0.5% was expected. This bad figure was shrugged off, as traders were awaiting this all important rate decision.
Next week we’ll get the fresh inflation figures for January and see if these numbers are in line with the decision made today. They probably didn’t breach the 4% mark. Not yet.
See more events and technical levels in the GBP USD Forecast.