Bank of England surprises with larger-than-expected interest rate hike
UK interest rate rises by 0.5% to reach 5%
The British Pound experienced a decline against the majority of major currencies
Recent data revealed a discouraging preliminary reading for the Purchasing Managers' Index (PMI) in the manufacturing sector
The preliminary reading for the services sector index also exhibited a decline, settling at 53.7 points
Economic developments impacting the British Pound
The British pound faced a second consecutive session of decline against most major currencies, influenced by the recent monetary policy decision of the Bank of England.
Yesterday, the Bank of England surprised markets by raising interest rates beyond expectations, marking the thirteenth consecutive rate hike as part of its efforts to tackle high inflation. With a majority vote of seven to two, the Monetary Policy Committee decided to increase interest rates by 0.5%, bringing them to 5%, the highest level since April 2008.
The Bank of England indicated that it may consider further rate hikes in the coming months if indications arise that inflation will persist at elevated levels for a longer duration than anticipated.
In other economic news, the UK's manufacturing sector showed a negative preliminary reading for the Purchasing Managers' Index (PMI), with the index recording a contraction at 46.2 points, compared to the previous reading of 47.1 points. Similarly, the preliminary reading for the services sector index declined to 53.7 points, down from the previous reading of 55.2 points.
Turning to trading, the British pound opened the final session of the week on a downtrend against the US dollar, with the currency pair trading near the 1.2707 dollar mark.
Key Technical Levels Affecting GBP/USD Movement
Following its breakthrough of the resistance level at 1.2620, the British pound experienced an upward surge, reaching its highest peak at 1.2848. However, a corrective phase has set in, and it is probable that further correction will test the strong support level at 1.2620.
Maintaining the support level at 1.2620 could pave the way for further upside, testing resistance levels at 1.2780. If surpassed, this may extend the rally to retest the peak at 1.2848, and a breakthrough could push the pound towards the 1.30 level.
Overall, in the short and medium term, the GBP/USD pair maintains an upward trend, although the current movement represents a correction within this trend.
Nevertheless, if the pair continues its descent and breaches the support level of 1.2600, this could contribute to further downside, testing the support level at 1.2490. A breakthrough below that level might lead to a further decline towards 1.2325.