Bank of England crashes GBP

Source: Dukascopy Bank SA
On May 5th, the Bank of England hiked its interest rate from 0.75% up to 1.00%, which is the highest level in 13 years. In addition, the bank revealed how the monetary policy makers voted on the rate hike. Namely, six of the committee voted for a 0.25% hike, but three members wanted a 0.50% hike that would set the rate at 1.25%.

Meanwhile, the central bank revealed that in its opinion recent global events have led to a deterioration of the economic outlook for the whole world and the United Kingdom.

Quoting the statement: "The MPC sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 4 May 2022, the MPC voted by a majority of 6-3 to increase Bank Rate by 0.25 percentage points, to 1%. Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 1.25%.

Global inflationary pressures have intensified sharply following Russia's invasion of Ukraine. This has led to a material deterioration in the outlook for world and UK growth. These developments have exacerbated greatly the combination of adverse supply shocks that the United Kingdom and other countries continue to face. Concerns about further supply chain disruption have also risen, both due to Russia's invasion of Ukraine and to Covid-19 developments in China. "

Released Document

Monetary Policy Summary and minutes of the Monetary Policy Committee meeting

The GBP/USD reacted with an initial 35 base point spike up to the 1.2580 level. However, the rate started to plummet afterwards By 12:00 GMT, the currency pair had reached the 1.2395 mark via a 184 base point or 1.47% decline.

On a larger scale, the GBP/USD is approaching mid 2020 levels.

Initial Reaction

Larger scale situation

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