GBPUSD tumbles to new year lows after BOE decision today

The BOE raise rates by 25 basis point, but the rate hike was considered more of a dovish/bearish hike. Economic forecasts call for sharply higher  inflation  Inflation Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market. Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market. Read this Term to year-end, and declining growth. That sent the GBPUSD tumbling lower and below the low from last week at 1.24103. The price has reached a new 2022 low and low going back to June/July 2020 at 1.23603 today (so far).

There was a swing low in early July 2020 near 1.24372 before the price based against its 100 day moving average and started to move to the upside (at that time). That level combined with the low price from last week at 1.24103 is close risk on the daily chart now (see chart above).

Drilling to the hourly chart below, the GBPUSD pair moved above its 200 hour moving average yesterday on the back of the weaker dollar after the FOMC relief rally (in stocks and USD selloff). Those gains started to be eroded ahead of the  Bank of England  Bank of England The Bank of England (BoE) functions as the United Kingdom’s central bank and is one of the key drivers of monetary policy in Europe.  As one of the world’s oldest central banks and established in 1694, the BoE is owned by the British government.  Its central mandate involves maintaining and targeting interest rates while using other tools to help either stimulate or contract the economy. Moreover, the BoE is responsible for producing the UK’s bank notes as well as supervising key bank payment systems. The bank helps not only craft monetary and financial stability within the UK but also yields enormous influence on the country’s currency, the British pound. How does the Bank of England (BoE) Affect Forex Traders? The BoE is one of the closest watched central banks by forex traders, along with the US Federal Reserve and European Central Bank (ECB).  FX traders are regularly tuned into any updates out of the central bank given its potential to affect the pound and many other currency pairs. The Euro for example is highly correlated to the pound. Furthermore, the bank also has at its disposal a variety of monetary policy tools that are capable of impacting the pound. One of the most common of these historically has been quantitative easing (QE), among others, which can increase or decrease the value of the pound. Beyond FX, the BoE helps address domestic inflation, tinkering interest rates to stimulate the economy. Many investors are cognizant of the BoE interest rate as this measure is instrumental for a variety of economic barometers. The Bank of England (BoE) functions as the United Kingdom’s central bank and is one of the key drivers of monetary policy in Europe.  As one of the world’s oldest central banks and established in 1694, the BoE is owned by the British government.  Its central mandate involves maintaining and targeting interest rates while using other tools to help either stimulate or contract the economy. Moreover, the BoE is responsible for producing the UK’s bank notes as well as supervising key bank payment systems. The bank helps not only craft monetary and financial stability within the UK but also yields enormous influence on the country’s currency, the British pound. How does the Bank of England (BoE) Affect Forex Traders? The BoE is one of the closest watched central banks by forex traders, along with the US Federal Reserve and European Central Bank (ECB).  FX traders are regularly tuned into any updates out of the central bank given its potential to affect the pound and many other currency pairs. The Euro for example is highly correlated to the pound. Furthermore, the bank also has at its disposal a variety of monetary policy tools that are capable of impacting the pound. One of the most common of these historically has been quantitative easing (QE), among others, which can increase or decrease the value of the pound. Beyond FX, the BoE helps address domestic inflation, tinkering interest rates to stimulate the economy. Many investors are cognizant of the BoE interest rate as this measure is instrumental for a variety of economic barometers. Read this Term decision. The price tumbled through the 100 hour moving average after the decision and the selling did not abate until reaching the 1.2360 level. There is some slowing of the declines.

The high price after falling below the 2022 low at 1.24103, moved up to 1.2413 - just above that old low level - before rotating back to the downside.

Stay below 1.24103 now keeps the sellers firmly in control. A move above could lead to some disappointment on the new break with the 1.2437 level as another level to get to and through (off the daily chart). The low price from yesterday at 1.24503 and the swing low area between 1.2465 and 1.2473 would be other upside targets to get to and through if the buyers are to take more control in short-term.

Absent that, and the sellers remain in control.

.