The Bank of England hikes rates by 50 basis points, as expected today. THe initial reaction was strength in GBP but it lasted only seconds before a swift fall to 1.2067 from 1.2195.
The selling came after the BOE forecast a recession starting in Q4 and lasting five quarters.
In general, central banks are loathe to forecast negative growth and are usually too rosy. That had the market thinking the reality may be even worse than the forecast.
However after steadying, cable has climbed back to flat on the day at 1.2157 (though still about 35 pips below pre-announcement levels). Score that as a win for the bulls, who continue to make slow progress since the mid-July low of 1.1760. That level was also the worst since the pandemic.
The pound is getting some help from the dollar side of the equation today. USD is softer with Treasury yields down 5-8 bps across the curve. There are jitters ahead of tomorrow's US non-farm payrolls report that are likely weighing.
Overall though, the resilience in GBP today is a good sign that bearish sentiment has maxed out.
