GBP/USD Resumes Uptrend After BOE Offers No Pivot

GBP/USD has been bullish since early November, although in the first week of December, we saw a 200 pip retreat to around 1.25, where this pair found support at the 200 SMA. This week buyers returned and this pair bounced higher, breaking above last month’s high, after the FED turned dovish while the BOE kept the rate hike option open.

The main thing from the Bank of England yesterday was that they did not pivot this time, but they will do soon, since the fundamentals look pretty weak in the US, after seeing this week’s GED report. So, there’s not much reason for the GBO to keep gaining versus other major currencies, although the USD is an exception due to FED’s policy change. The price bounced around 30o pips from the bottom to the top, so the door for further gains in GBP/USD is open.

The Bank of England Policy – 14 December 2023

• BOE leaves bank rate unchanged at 5.25% as expected
• Prior bank rate was 5.25%
• Bank rate vote 6-3 vs 6-3 expected (Greene, Haskel, Mann voted to raise by 25 bps)
• The decision to hike or to hold was again “finely balanced”
• Still some way to go on inflation
• To take necessary decisions to get inflation all the way back to 2%
• Policy will need to be sufficiently restrictive for sufficiently long

• Most policymakers say it it too early to conclude that services inflation or pay growth are on a firmly downward path
• Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures
• Sees inflation just under 4.5% by year-end (previously 4.75%)

• Full statement

Remarks by BOE Governor, Andrew Bailey

• We cannot say that interest rates have peaked
• Markets form their own view
• We are more cautious than markets
• It’s really too early to start speculating about rate cuts
• There is more to do on bringing inflation down to target
• But there are encouraging signs on inflation

GBP/USD surged from below 1.25 before the FOMC to 1.2790 which comes as the BOE maintains a more hawkish tone, certainly far more than the Fed did yesterday, despite a little lower inflation projection for the year. There is no pivot. At first look, the primary message from the BOE statement is that there is insufficient evidence to imply that disinflationary factors are winning out. They also keep the passage open by implying that additional tightening may be required, which keeps the door open even if they do not intend to raise interest rates any longer.

GBP/USD Live Chart