The GBP/USD price also rose slightly even after a hawkish statement by Raphael Bostic.
- Sell the GBP/USD pair and set a take-profit at 1.0400.
- Add a stop-loss at 1.1150.
- Timeline: 1-2 days.
- Set a buy-stop at 1.1100 and a take-profit at 1.1200.
- Add a stop-loss at 1.100.
The GBP/USD price stabilized slightly as the market reflected on the latest intervention by the Bank of England (BoE). After crashing to an all-time low of 1.0366 on September 26, the pair rose to 1.0925 in a sign of relief.
Bank of England intervention risks
The GBP/USD price has come under intense pressure since last week when Kwasi Kwarteng announced tax cuts worth over 45 billion pounds. The tax cuts includes incentives to boost London as the financial capital of London.
In a statement on Wednesday, the BoE attempted to calm the markets by intervening in the situation. The bank will buy government bonds with long maturities on whatever scale that is necessary. In the immediate timeframe, the bank will purchase bonds worth 5 billion pounds every day for the next 13 days.
Still, analysts caution that this stimulus by the Bank of England could backfire since it could lead to more inflation. Data published this month showed that inflation dropped slightly in August due to government’s support on energy. Without that support, inflation is expected to hit 20% in 2023. Some analysts believe that the BoE will need to hike rates by 100 basis points before its scheduled meeting.
The GBP/USD price also rose slightly even after a hawkish statement by Raphael Bostic. Like other recent Fed speakers, he predicted that the bank will continue hiking interest rates by 0.75% in its November meeting. He believes that the economy has the capacity to support these increases since consumer confidence is rising.
The pair will next react to the upcoming UK mortgage approvals and lending data. With mortgage rates soaring, most analysts expect that mortgage lending dropped to 4.9 billion pounds in August. The US will also publish the final estimate of GDP data.
The four-hour chart shows that the GBP/USD pair fell to a low of 1.0364 on Monday. It then stabilized modestly in the past few days. The pair moved slightly above the first support of the standard pivot point while the Klinger Oscillator moved to the highest level since September 14.
It has also formed what looks like a bearish flag pattern. Therefore, the pair will likely have a bearish breakout as the market reflects on the actions by the BoE. If this happens, the next key support level to watch will be at 1.0400.