Surprise! BoE does it again

The British pound is flat on Friday, after posting gains a day earlier on the BoE rate hike.

BoE surprises with rate hike

I’m not sure if BoE Governor Andrew Bailey is chuckling this morning, as he reads the financial section of his favorite newspaper with hot tea in hand. Bailey has done it again, catching the market off-guard after a BoE rate decision. In November, Bailey had signalled that ‘now was the time to act’ in order to contain surging inflation. Market participants had duly priced in a rate hike but had egg on their face when not only did the BoE refrain from a hike, but Bailey voted with the majority against raising rates. The markets were warier this time around, even though inflation continued to head higher and the labor market showed improvement. These were strong reasons in favor of a hike, but uncertainty over Omicron, which has sent infection rates in the UK skyrocketing, seemed reason enough for the BoE to wait until it had a better handle on the threat posed by Omicron.

In the end, the BoE surprised the markets yet again, raising rates from 0.10% to 0.25%. The vote was near-unanimous, with 8-1 in favor. The bank’s statement noted that it had to act due to inflation as well as the employment situation, with an upside risk of wages moving higher.

Although the size of the rate was small, the move is nonetheless significant, since it marks the first rate hike by a major central bank during the Covid pandemic. This is a clear signal from the BoE that it will no longer ignore inflation, echoing the message sent by the Federal Reserve just a day earlier. The pound gained 0.43% on Wednesday, courtesy of the BoE move.

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GBP/USD Technical Analysis

• GBP/USD has support at 1.3190 and 1.3116
• There is resistance at 1.3314 and 1.3364

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