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The pound 1.34 defense line sounds the "air raid alarm", and the "hawkish rebellion" within the central bank "triggers long-short street battle"

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Hello everyone, today href="https://eouu.cn/">XM Forex will bring you "[XM Forex Market Review]: The pound's 1.34 defense line sounds the "air raid alarm", and the central bank's "hawks rebellion "triggers long-short street battle"". I hope it will be helpful to you! The original content is as follows:

On Thursday (August 7), at 19:00 Beijing time, the Bank of England (BoE) announced its latest interest rate resolution, shocking 5 to 4 5 times The number of insurance votes lowered the benchmark interest rate from 4.25% to 4%, the fifth rate cut in a year since August 2024, which is in line with market expectations. This decision has attracted high attention from the rare split vote within the Monetary Policy eouu.cnmittee (MPC), and the majority opinion was reached for the first time. The pound rose by more than 40 points against the US dollar in the short term, reaching a high of 1.3427, but then fell rapidly, reflecting the market's disagreement on the path of interest rate cuts and the outlook for inflation. This article will eouu.cnbine Details of the resolution, real-time market conditions, and feedback from institutions and retail investors, an in-depth analysis of market reactions and future trends.

Market background and resolution overview

In the context of increasing global economic uncertainty, the Bank of England faces the dual challenges of inflation and the employment market. In June, the UK inflation rate rose to 3.6%, further from 3.4% in May. The central bank predicts that inflation will peak 4% in September, far exceeding the target of 2%. At the same time, the unemployment rate rose to 4.7% in the three months ending in May, which is more important than the target of 2%. The previous value of 4.6% worsened slightly, indicating a cooldown in the job market. Geopolitical tensions and tariff rhetoric have intensified the market risk aversion. Although the UK economic growth rate rebounded from 0.1% in the second quarter to 0.3% in the third quarter, overall growth remained sluggish. Against this backdrop, the Bank of England cut interest rates by 25 basis points with a 5-4 vote. Governor Andrew Bailey reiterated that interest rates are still in a "downward channel", but emphasized that the future rate cuts will be "gradual and cautious". It is worth noting that the central bank deleted the "monetary policy" in its statement.The statement of tightening is changed to "the restriction of monetary policy has declined", which implies that the interest rate cut cycle may be nearing its end.

eouu.cnpared with the June 19 resolution, MPC kept the interest rate unchanged at 4.25% with a 6-3 vote, and the pound plunged 18 points against the US dollar in the short term to 1.3404. In contrast, the decision to cut interest rates triggered more severe market volatility, highlighting the market's sensitivity to policy differences and inflation prospects. Institutions and retail investors reversed Different interpretations of future policy paths should also be shown.

Instant market and market sentiment

After the resolution was announced, the pound rose rapidly against the US dollar (GBP/USD), soaring more than 40 points in the short term, reaching a high of 1.3427, with the latest 1.3400, with an intraday increase of 0.34%. This wave of rise was mainly driven by the decision to cut interest rates in line with expectations, but it fell rapidly after rising, indicating that the market opposed the four members within the MPC. The unexpected stance of interest rate cuts is uneasy. In contrast, the market had previously generally expected seven eouu.cnmittees to support interest rate cuts, but only five people actually agreed, highlighting policy differences beyond expectations. The FTSE 250 index narrowed its gains after the resolution, only 0.07%, reflecting the stock market's cautious attitude towards the boosting effect of interest rate cuts. In the bond market, the UK's two-year Treasury yield rose 6 basis points to 3.889%, and the 10-year Treasury yield climbed 5.5 basis points to 4.58 8%, showing that the market's concerns about the risk of upward inflation are intensifying.

Real-time feedback further reveals the differentiation of market sentiment. Institutional investors generally focus on MPC's split votes and inflation forecasts upwards. A well-known institutional analyst pointed out: "The 5-4 votes and the first two rounds of votes show that concerns about inflation risks within the Bank of England are heating up, especially food price inflation is expected to rise from 4.5% in June to 5.5% by the end of 2025. "Retail investors are paying more attention to the short-term fluctuations of the pound. One user eouu.cnmented: "The pound quickly fell after reaching 1.3427, and then rose to 1.3430. The market is obviously hesitant about whether the interest rate cut cycle will continue to be indecisive, and the 1.34 mark has become the key support. "Compared with the expectations before the announcement, some institutions had predicted that interest rate cuts may be cut again in November, but this expectation cooled significantly after the resolution, and even discussions among retail investors that "rate cuts within the year may be suspended."

The changes in market sentiment were also driven by central bank forecasts. The Bank of England raised its inflation peak forecast to 4%, and expected inflation to fall back to 2% until the second quarter of 2027, one quarter later than May's forecast. Rising food prices, minimum wage adjustments and global Price pressure is considered the main factor driving inflation higher. In addition, the central bank expects the unemployment rate to rise to 4.9% in the fourth quarter of 2025, indicating further pressure on the job market. These data exacerbate market concerns about tightening monetary policy, and the short-term rise of the pound against the dollar has not continued, reflecting investors' trade-offs between interest rate cuts and inflation risks.

Rate cut expectations and market impact

The background of this rate cut is the Bank of England's attempt to undermine inflation pressureFind a balance with weak economic growth. Inflation rose to 3.6% in June and was expected to reach 4% in September, far exceeding the target of 2%, which has strengthened the internal opposition to interest rate cuts. Four eouu.cnmittee members who opposed the rate cut, including Deputy Governor Claire Lombardley and Chief Economist Hugh Peele, are concerned that the upward risks of inflation may be further transmitted through wage agreements and food prices. The minutes of the meeting pointed out that medium-term inflation pressure has risen slightly since May, which is in contrast to the central bank's previous expectations of "gradual downward". In contrast, the ECB has cut interest rates for eight consecutive times, and the euro zone inflation is expected to remain below 2%, highlighting the more severe inflation dilemma faced by the UK.

The market's adjustment to expectations of interest rate cuts directly affects the trend of the pound. After the resolution on June 19, the pound plunged 18 points against the US dollar due to interest rates. Although the interest rate cut is in line with expectations, differences in vote counts and an increase in inflation forecasts have weakened market confidence in further easing. An institutional analyst said: "The hint that the central bank's statement of the 'rate cut cycle may end' has caused the market to start betting on a decrease in the probability of interest rate cuts in December." Some retail investors believe that the pound may fluctuate in the short term in the 1.34-1.35 range, lacking a clear direction. In contrast, the market generally expected another rate cut in November before the announcement, but the expectation was postponed to 2026 after the resolution, and the annual rate cuts may only be one to two times.

The boosting effect of interest rate cuts on the UK economy is also questioned. The central bank raised its 2025 economic growth forecast to 1.25%, but stressed that trade policy uncertainty and slowing global growth may drag down the economy. Treasury Secretary Rachel Reeves and Prime Minister Kiel Starmer's efforts to drive economic growth may be hindered by a slowdown in the rate cut cycle. A retail investor eouu.cnmented: "Rate cuts should have stimulated the economy, but inflationary pressure and deterioration in employment have made the market doubt the effect, and the weak performance of FTSE 250 is proof of it." Institutions are more concerned about the long-term impact. A well-known institution analyzed: "The difficulties faced by the Bank of England are similar to the Federal Reserve. The game between inflation and employment may make the policy path more eouu.cnplicated."

Future trend prospect

Looking forward, the Bank of England's monetary policy path is full of uncertainty. The central bank reiterated its "gradual and cautious" rate cuts, but the 5-to-4 votes and the first two rounds of votes show internal concerns about inflation risks. Market interest rates suggest bank interest rates may drop to 3.8% in the fourth quarter of 2025, further down to 3.5% and 3.6% in 2026 and 2027, but this path may be adjusted as inflation exceeds expectations. Food price inflation is expected to rise to 5.5% by the end of 2025, coupled with pressure from the increase in minimum wage and national insurance, which may further push up prices and limit interest rate cuts.

The pound may fluctuate against the US dollar in the short term within the 1.34-1.35 range, with the 1.34 mark as a key support. If it falls below, it may further test the 1.33 level. In the long run, if inflation continues to rise and the job market continues to deteriorate, the central bank may be forced to slow down its rate cuts, and it is not even ruled out the possibility of a pause in interest rate cuts.. Institutional analysis generally believes that the probability of interest rate cuts in December has dropped significantly, and the market needs to pay close attention to September inflation data and employment reports to judge the policy direction. Retail investors prefer short-term trading opportunities and pay attention to the performance of pound near key technical positions.

In general, although the Bank of England's interest rate resolution on August 7 injected short-term positives into the market, internal policy differences and upward inflation risks put pressure on the pound's trend. Market sentiment swings between expectations of interest rate cuts and inflation concerns. The pound may continue to fluctuate in the short term, while the long-term trend depends on the further evolution of inflation and employment data. Investors need to remain vigilant and closely track the central bank's subsequent signals and global economic trends to cope with potential market fluctuations.

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The pound 1.34 defense line sounds the "air raid alarm", and the "hawkish rebellion" within the central bank "triggers long-short street battle"

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