- The Bank of England has left interest rates unchanged with a significant majority.
- The bank still aims to raise rates at some point.
- It states that near-term uncertainties have receded.
No Carney carnage – not this time and not later, as this is Governor Mark Carney's last rate decision. The Bank of England has not only left interest rates unchanged in what was a coin-flip decision – but also seemed calm.
Here are the hawkish developments that may allow GBP/USD to extend its gains:
1) More tightening?
While the "Old Lady" revised its growth forecasts down – acknowledging reality – it still intends to raise rates. Here is a passage from the penultimate paragraph, emphasis mine:
Further ahead, if the economy recovers broadly in line with the MPC's latest projections, some modest tightening of policy may be needed to maintain inflation sustainably at the target
This hawkish bias may also underpin further gains.
2) Only two dissenters
Economists had expected no fewer than three out of nine members of the Monetary Policy Committee to vote against the decision. The new dovish dissenter that some had speculated about was Gertjan Vlieghe, who expressed his concern early in January.
However, Vlieghe sided with the majority, showing there is no broad support for cutting rates.
3) Upbeat tone
The BOE is seeing lower uncertainty, more robust business activity – even investment seems to have picked up.
Domestically, near-term uncertainties facing businesses and households have receded. Surveys of business activity have picked up, quite markedly in some cases, and investment intentions appear to have recovered.
Moreover, Mark Carney concludes the list of recent developments as "positive."
Overall, while the London-based institution is sounding the necessary disclaimers of caution, it is generally optimistic.
GBP/USD has bounced from around 1.30 to closer to 1.31. However, the upbeat tone can send higher. The levels to watch are 1.3175, 1.3210, 1.3285, and even the post-election peak of 1.3510.
Support awaits at 1.30, 1.2955, and 1.29.
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