GBP/USD extends BoE-inspired rally, jumps to 1.3700 neighbourhood
|- The BoE’s optimistic forecasts prompted aggressive short-covering around GBP/USD.
- The BoE showed limited enthusiasm and pushed back expectations for negative rates.
- Sustained USD buying might hold bulls from placing bets and cap gains for the major.
The GBP/USD pair built on the post-BoE strong recovery move and shot to fresh session tops, closer to the 1.3700 mark in the last hour.
The pair witnessed a dramatic intraday turnaround and rallied over 125 pips from two-and-half-week lows, around the 1.3565 region after the Bank of England announced its policy decision. As was widely expected, the BoE left the benchmark interest rate and the size of the Asset Purchase Facility unchanged at 0.10% and £895 billion, respectively.
In the accompanying statement, the BoE projected GDP to recover rapidly towards pre-pandemic levels over 2021 and inflation to rise quite sharply towards the 2% target in the spring. Adding to this, the UK central bank pushed back expectations for negative interest rates, which, in turn, prompted some aggressive short-covering around the British pound.
Meanwhile, the minutes of the Monetary Policy Committee (MPC) meeting showed that policymakers did not wish to send a signal that a negative rate was in prospect or even imminent. However, in the post-meeting press conference, the BoE Governor Andrew Bailey said that the MPC will take necessary action if the inflation outlook weakens.
Bailey further added that the economic outlook remains unusually uncertain, though did little to influence the GBP/USD pair. That said, a strong pickup in the US dollar demand kept a lid on any further gains. The USD remained well supported by prospects for additional US fiscal stimulus and strong economic recovery.
The expectations were further fueled by the release of Initial Weekly Jobless Claims, which showed that the number of Americans filing for unemployment-related benefits dropped to 779K last week. This comes on the back of Wednesday's upbeat ADP report and ISM Services PMI, which might have lifted expectations for Friday's non-farm payrolls.
With the key BoE event risk out of the way, it will now be interesting to see if the GBP/USD pair is able to capitalize on the momentum or meets with some fresh supply at higher levels. Bulls might still wait for a sustained move beyond the 1.3755-60 congestion zone before positioning for any further appreciating move.
Technical levels to watch
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