Some days ago, BOE or the Bank of England rose their interest rate that was in line with what market is expected. However, the Poundsterling exchange value was surprisingly weakening.
It is especially to all currencies in the market. Besides that, the GBP/USD also fell by almost a percent until this pair reached the lowest level of 1.250; the cause was tge profit taking action faced by this currency.
Meanwhile, some analysts were no longer optimistic about the prospects ahead. The results of the BoE's Monetary Policy Committee meeting were the same as previous market forecasts.
The BoE raised their rates by 25 basis points where it means from 4.25% to 4.50%. They also raised projections for the United Kingdom economic growth and inflationary pressures going forward.
Traders Choose to Take Profits
The situation above was like confirming expectations of further rate hikes in the months ahead. It cannot be denied that inflation is still too high, As it was said by Governor Andrew Bailey.
His parties have to maintain this kind of tight monetary policy. The aim is to make sure inflation declines steadily until it returns to its 2% target.
Unfortunately, the BoE's policy statement did not provide new clues that exceeded expectations. Traders also chose to take profits and end the sterling rally that lasted since last weekend.
Some analysts even think the pound sterling is already too expensive and has limited room to strengthen further. They see it based on the conditions in forex market lately.
Analysts Have the Different Point of View
A lot of domestic good news for the UK is now factored in. This was stated by Shreyas Gopal, a strategist at Deutsche Bank through a note released ahead of the BoE meeting several days ago.
After being bullish on the pound since the beginning of this year, the analysts think the pound no longer has an attractive risk/reward ratio in the short term. However, Not all analysts agree.
The experts from Goldman Sachs actually raised the projection of the pound sterling exchange rate from neutral to constructive. It is especially after changing the projection from underweight to neutral in February.
They are now taking a really constructive stance. Basically, they also think the same factors that weighed on sterling in 2022, especially the natural gas prices and the BoE's policy stance.
Greenback Strengthened Significantly
People believe that those things have turned out to be drivers. This was shared by Kamakshya Trivedi, a head of global FX at Goldman Sachs, said in an occasion.
Elsewhere, The greenback strengthened sharply versus a basket of other major currencies over the weekend. At the close of trading on Friday (12/May), the Dollar Index (DXY) increased.
It rose by 0.63 percent to 102.70. That way means that this DXY successfully recorded a rebound of 1.40 percent throughout the week.
In the short term, the retracement phase was confirmed after DXY rose through 101.99. That means that it has experienced for about 23.6% retracement and closed the Daily candle above the MA-50 curve.
Medium Term Outlook can be Affected
The RSI indicator moving up to positive territory also supports the confirmation of this retracement phase. The prospect of approaching the 103.33 equilibrium level (50 percent retracement) is a possibility that cannot be ignored.
However, generally, there will be resistance or reaction of sellers in that area of balance. So, price action or price action in that zone is worth watching.
Howeve, if DXY manages to break through it and continues to rise to close the Daily candle above 103.94 (61.8 percent retracement), this condition could be a threat to the medium-term outlook.
In the medium term, the potential for the Dollar Index to enter a retracement phase is still a prospect that is unlikely or low. From the previous history on the same time frame, DXY did rise through 104.10 (23.6 percent retracement).
