Will BOE follow the Fed?

The trend in GBP/USD has been sour mainly on the back of the exponential growth of new contagions related to the coronavirus Delta variant, with fears of the further easing lockdown measures. Also, the rise in dollar index post hawkish Federal Reserve policy weighed on pound. The Federal Reserve pencilled to rate hikes in 2023, which came as a surprise to the forex market. Now the focus is on tomorrow's Bank of England policy. The inflation in UK is also rising and this may trigger the BOE to turn hawkish like the US Federal Reserve. A rate hike by BOE seems unlikely for this year and the next, the interest rates will stay unchanged as will other policy measures, should policymakers hint something different, a strong pound reaction could be expected.

As seen in the chart, the pound has been boosted by encouraging comments from British Health Minister Matt Hancock after the full easing of lockdown was delayed by four weeks due to the impact of the Delta variant of Covid-19. Mr Hancock suggested on Tuesday that England's lockdown could end in full as planned on July 19 because a recent rise in cases is not resulting in deaths.

The GBPUSD after hitting more than two months low of 1.3786 made a reversal and is currently trading at 1.3944. Immediate resistance lies 1.3965 and crucial 61.8% Fibonacci Retracement as well as Bollinger band's medium resistance level is located at 1.4070-1.4090 zone. If the pair breach and sustains above 1.4100 then only we can see next level at 1.4195-1.4250. However, more clear picture for GBPUSD price movement will be seen after the BOE policy which is scheduled later tomorrow. If the pair respected the 1.4070-1.4090 zone then we can expect a dip towards 1.3850-1.3785 below which only next support is observed at 1.3670/1.3660.