GBP/USD holds gains above 1.2200 after hawkish BoE pause
GBP/USD is holding the upside above 1.2200 after the BoE delivered a hawkish pause on 'Super Thursday'. The BoE held the policy rate steady at 5.25% leaving the door open for more rate hikes. The US Dollar extends losses after downbeat US employment data.
1.2200 (200-period Simple Moving Average (SMA) on the 4-hour chart, Fibonacci 23.6% retracement of the latest downtrend) aligns as key technical resistance for GBP/USD. A 4-hour close above that level could attract technical buyers and open the door for another leg higher toward 1.2260 (static level) and 1.2300 (Fibonacci 38.2% retracement).
On the downside, 1.2150 (50-period SMA, 20-period SMA) forms interim support before 1.2100 (static level, psychological level) and 1.2050 (end-point of the latest downtrend).
GBP/USD gathered bullish momentum and registered gains on Wednesday after dropping below 1.2100 earlier in the day. The pair continued to stretch higher toward 1.2200 on Thursday but lost its traction, with investors refraining from taking large positions ahead of the Bank of England's (BoE) monetary policy announcements.
The Federal Reserve held the policy rate steady at 5.25%-5.5% as widely expected on Wednesday. Fed Chairman Jerome Powell did not rule out another rate hike in December but failed to convince markets. The benchmark 10-year US Treasury bond yield fell nearly 4% on the day and the US Dollar (USD) weakened against its major rivals, allowing GBP/USD to turn north.
The BoE is forecast to keep the key rate unchanged at 5.25% for the second consecutive meeting. Investors will scrutinize revised projections and the statement language to see whether the BoE has reached the end of the tightening cycle.
BoE Governor Andrew Bailey will hold a press conference to deliver the Monetary policy Report and respond to questions from the press. In case Bailey notes that they will keep the policy rate at 5.25% in the face of weakening economic outlook and softer inflation, Pound Sterling could come under selling pressure. On the other hand, if Bailey adopts a hawkish tone by citing heightened inflation risks amid the Middle East conflict, GBP/USD could regain its traction.
Previewing the BoE event, "forward guidance will likely be softened a bit, in light of the weaker economic outlook – signaling a pretty high bar for further hikes," said TD Securities analysts and added:
"A dovish hold by the BoE will weigh on the GBP especially versus peers where the growth-inflation outcomes don't look as meek."