Pound sinks on BoE shocker

The British pound is down sharply in the Thursday session. GBP/USD is currently trading at 1.3527, down 1.14% on the day.

BoE takes a pass, pound slides

The BoE surprised the markets by maintaining rates at 0.10% at today’s policy meeting. There had been high expectations that the bank would raise rates by 15 basis points, but in the end, the MPC doves won this battle.  The vote to keep rates on hold suggests that the bank is not in a rush to raise rates anytime soon. This may cause some head-scratching in the markets, as Governor Bailey has been sending strong signals that the bank needed to act in order to contain surging inflation, raising expectations of a rate hike at the meeting. Yet Bailey was one of the members voting against a rate hike.

Why did the BoE change course after strongly hinting that it would raise rates? The minutes of today’s policy meeting indicate that most MPC members wanted to see additional employment data, such as the impact of the end of the furlough scheme, before tightening policy.

The disappointment at the bank’s non-move has been palpable, with the pound falling over one percent. Andrew Sentance, a former MPC member, lashed the bank for sending “more misleading signals”. The bank will clearly need to work on its communication with the markets, after today’s surprising decision.

Over in the US, the Fed tapered its bond purchase programme by 15 billion dollars/mth. This move had been well-telegraphed. Fed Chair Powell said the central bank would be “patient” with regard to rate hikes, stating that now was not the time to raise rates since the labour market needed to improve first. Powell added that the Fed expected to wind up tapering in mid-2022, but the process could be accelerated or slowed down depending on the economy.

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GBP/USD Technical Analysis

• GBP/USD has broken below support at 1.3570. The next support level is 1.3471
• There is resistance at 1.3793 and 1.3892

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