Daily FX Market Review: Sterling Pounded After Bank of England Releases Dovish Guidance

The Bank of England (“BoE”) raised its key interest rate by 75 basis points (0.75%) today, which is now 3% from 2.25%.

This was the eighth consecutive meeting where it raised rates, reaching its highest level since November 2008!

The rate hike, which was the largest since 1989, was similar to yesterday’s decision by the Fed, which also raised by 75 basis points, and took its target range from 3.75% to 4%.

But where the Fed provided more hawkish guidance and said rates were not yet close to their peak, the BoE said the opposite.

Their forward guidance and economic forecasts suggested a dovish outlook for UK interest rates, sending a strong signal that interest rates would NOT rise in the future by as much as markets expect.

Not familiar with central banks and interest rates? Read our lesson on Why Interest Rates Matters to Forex Traders.

The BoE warned that the outlook was “very challenging”, forecasted a long recession ahead, and provided unusually strong guidance that interest rates would not need to rise much further.

In BoE Governor Andrew Bailey’s own words, “We can’t make promises about future interest rates but based on where we stand today, we think Bank Rate will have to go up by less than currently priced in financial markets.” 😬

Let me translate in plain English, “Yo markets! The terminal rate y’all expecting from us is too high!”

The terminal rate is the point at which a central bank stops tightening in a cycle and where the benchmark interest rate will come to rest.

This unusually clear dovish guidance from the Bank of England caught pound traders by surprise.

After the central bank’s announcement, the pound weakened against major currencies.

Check out how the GBP/USD ended today…

The currency pair is now trading back below its 50 SMA (pink line). I wouldn’t be surprised if this fall backs down to 1.1000.

Regarding other GBP pairs, they got less of a pounding than GBP/USD, but they still got pounded.

Let’s review what else happened in the FX market today…

Currency Market Movers

Which currency pairs gained the most today?

As shown by our FX Market Movers page, EUR/GBP was the leader of the pack, gaining 1.37% or 118 pips. 🙌.

Which currency pairs lost the most today?

GBP/USD.was the biggest loser, falling 2.04% or over 231 pips! 😔

Currency Strength

What was the overall strength or weakness of individual major currencies today?

Based on the Currency Strength Meter on MarketMilk™, the U.S. dollar (USD) was the strongest currency. 💪

The British pound (GBP)) was the weakest currency.

Over the last 7 days, look how much the GBP has lost strength.

Currency Short-Term Trends

When it comes to short-term trend strength, the New Zealand dollar (NZD) is showing the most bullish strength. USD, CAD, and JPY show bullish strength as well.

The euro (EUR) has the most bearish trend strength.

Currency Volatility

Which currency was the most volatile today?

Based on our Currency Volatility Meter, it’s the British pound (GBP).

Given that the Bank of England statement was today, this should be no surprise.

Which currency pair was the most volatile today?

Given that the GBP was the most volatile currency, it has to be a GBP pair. But which one?

GBP/USD. From its high to low, it moved over 2.43% or over 270 pips! 

Are you bullish or bearish on GBP/USD?

Is GBP/USD a buy or sell?

Here’s what MarketMilk™ indicators say…