Pound Surged Higher Following BOE’s Surprise Rate Hike

The pound rebounded from its one-year low against the dollar back above its 1.33 levels on Thursday, following a surprised rate hike by the Bank of England (BOE). The pair of GBP/USD rose 0.46% to 1.3320, while the dollar index fell 0.34% back to its 96.00 support zone.

Since the surface of the Covid-19, Omicron variant, the UK had reinstated fresh lockdown measures to curb the virus after the nation recorded more than 50K cases a day. The decision from the government had since dampened expectations for a rate hike from the BOE, thus yesterday’s shocking move had driven confidence back into the pound.

According to BOE’s Governor Bailey, longer-term inflation is expected to fluctuate above the bank’s expectation despite ongoing pressures from the new variant. Thus, the BOE decided that a 15 percentage points rate hike is deemed fit to ensure that the overall recovery ahead will not be derailed by rising goods price.

In other news, the European Central Bank (ECB) also held its final policy meeting for 2021, where a slight hawkish tone was delivered while boosting the euro’s appeal. According to ECB President, Christine Lagarde, it is agreed that the timing is now appropriate to start unwinding its stimulus program starting next year, however, the bank will still remain flexible on its policy.

The hawkish tone from both central bank policy meetings had lifted the market risk sentiment, causing further decline in the dollar despite encouraging Fed signals. The pair of EUR/USD rebounded by 0.32% back above its 1.1320 levels.    

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From the technical front, the pair of GBP/USD broke above its previous downward trendline and completed its technical correction before rebounding higher. The pair is currently testing near its 23.6 Fibonacci resistance at 1.3320; MACD, showing a bullish momentum, suggests the pair to extend higher towards the 38.2 Fibonacci level near 1.3415 after successfully closing its candle above 1.3320.