The Bank of England (BoE) has remained dormant for a while. The regulator has occasionally made some statements but refrained from taking any action. In essence, it has followed in the footsteps of the European Central Bank (ECB) and the Federal Reserve. Whenever the influential global central banks have made policy changes in the last few years, the BoE quickly followed suit.
However, the BoE monetary policy statement made yesterday came as a surprise. The rate-setting committee unveiled its agenda for policy tightening and also the timeline for raising interest rates. The first-rate hike to 0.25% is due in May 2022. The second one will be in December.
Such a policy update caught investors off-guard. Traders responded to the news with optimism, and the pound sterling rallied. The Bank of England came up with a clear timeline for rate hikes, unlike the Federal Reserve, which was vague about its timeline of interest rate hikes.
UK Key Interest Rate
Dismal US statistics released yesterday cemented an advance of the pound sterling. The initial unemployment claims grew 16,000 last week, defying forecasts for a 25,000 contraction. Continuing jobless claims revealed the worsening situation as the number increased by 131,000, though analysts had projected a fall of 164,000.
It was no wonder the US Dollar tumbled in response. Later in the evening, it paused its decline. Overall, the overall outlook for the US dollar remains bullish as the Federal Reserve announced drastic cuts in monthly bond purchases.
The temporary weakness of the US dollar yesterday seems to be a downward correction. Once it is over, the greenback will resume its uptrend.
US Continuing Unemployment Claims
GBP/USD aroused strong speculative interest after the Bank of England unveiled policy decisions. As a result, a local low of 1.3600 turned into a support that caused a 130-pip correction.
A significant price change over a short time made GBP/USD overbought. The RSI technical indicator confirms such market conditions as it has surged above 80 points. The medium-term outlook remains bearish despite the Pound’s temporary rebound.
Outlook And Trading Tips
GBP/USD completed the upward correction at around 23.6% Fibonacci level. This is where the pair began the upward retracement and then got stuck in the range of 1.3710/1.3735. We suppose that the price consolidation below 1.3700 will revive bearish interest. This could drag down GBP/USD towards 1.3685-1.3640.
The alternative scenario will come into play if the currency pair becomes a speculative instrument again. In this case, if GBP/USD consolidates above 23.6% Fibonacci level on the 4-hour chart, the price will jump towards 1.38