GBP/USD Surge: Bank of England Hawkish on Rates

GBP/USD surge above 1.2700 as Bank of England maintains rates amid hawkish stance; global markets react to Fed’s dovish pivot.

In a widely anticipated move, the Bank of England (BoE) maintained its current monetary policy in the latest announcement, marking the third consecutive meeting without changes. However, the decision was not without contention, as three members of the Monetary Policy Committee (MPC) advocated for a 25 basis point rate hike.

BoE Governor Bailey reiterated the central bank’s assertive position on the persistently high UK inflation, emphasizing the potential need for rate hikes in the future. Bailey suggested that the existing restrictive policy might be necessary for an extended period, reinforcing the hawkish sentiment within the BoE.

GBP/USD Surge: Bank of England Hawkish on Rates

The hawkish stance of Governor Bailey sharply contrasts with the dovish pivot observed in the United States Federal Reserve’s (Fed) recent communication. Fed Chair Powell announced potential rate cuts in 2024 diverged significantly from the BoE’s posture. While the Fed hinted at three 25 basis point cuts in the coming year, the market anticipates a more substantial reduction, with projections totaling 150 basis points in 2024.

Market reactions were swift, with the GBP/USD currency pair responding positively to the BoE’s decision. Breaking above the critical level of 1.2700, Cable (GBP/USD) showcased strength against the weakened US dollar following the dovish tone set by the Fed in its latest meeting. Analysts suggest that Cable might target the November 29 high at 1.2733 in the short term, potentially reaching levels unseen since the end of August.

Retail trade data for GBP/USD indicates a nuanced sentiment among traders, with 49.23% net-long and a short-to-long ratio of 1.03 to 1. Changes in positions show a daily decrease of 12% in longs, an 8% increase in shorts, and a weekly shift of -7% in longs and -3% in shorts.

As the divergence in monetary policies between major central banks continues, the GBP/USD pair remains bullish, with market participants closely monitoring upcoming events for potential further developments.

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