The GBPUSD pair shot up on Thursday after the surprise interest rate decision by the Bank of England (BOE). The pair was trading at 1.3325 on Friday morning, which was higher than this month’s low of 1.3175.
UK economic performance
The UK economy has been doing well, as evidenced by this week’s inflation and employment numbers. Data published by the Office of National Statistics (ONS) on Tuesday showed that the country’s unemployment rate declined to 4.2% in October. This is the lowest level that the unemployment rate has been since the pandemic started. It is also a remarkable improvement from the pandemic high of 5.2%.
The economy created hundreds of thousands of jobs in October while wage growth continued doing well. Also, the number of people filing for claims declined.
On Wednesday, the ONS published strong inflation numbers. The data revealed that the headline consumer price index (CPI) rose from 4.2% in October to more than 5.2% in November. Core inflation that excludes volatile food and energy prices also rose to about 4.0%.
Inflation has risen because of the performance of energy prices and the ongoing supply chain disruptions. For example, the price of shipping a container from China has almost doubled this year.
However, the UK economy is also facing significant risks as the number of Covid-19 cases. On Wednesday, the country confirmed more than 70,000 daily Covid-19 cases. This was the highest figure recorded since the pandemic started.
It is against this backdrop that the Bank of England (BOE) held its final meeting of the year this week. On Thursday, the bank surprised the market when it decided to hike interest rates. It became one of the few major central banks to hike. Others that have hiked recently are the Bank of Canada, Reserve Bank of New Zealand (RBNZ), and Norges Bank.
The BOE lifted interest rates by about 0.25%, which pushed the GBPUSD significantly higher. Before the meeting, most analysts were expecting that the bank will be cautious because of the new Covid wave.
However, BOE’s officials judged that the impact of the Omicron and Delta waves on the economy will be relatively limited. Therefore, they judged that price stability was also an important role considering that the real inflation is significantly higher than the reported figure.
The GBPUSD rose as investors weighed the BOE and the Fed interest rate decision. On Wednesday, the Fed decided to sound relatively hawkish in its meeting. It decided to double the size of the quantitative easing (QE) tapering to about $30 billion. It expects that the QE program will end in March next year. The bank also expects to implement three rate hikes in 2022.
Therefore, the performance of the GBPUSD is mostly because the Fed decision was anticipated since Jerome Powell provided these hints before. The BOE decision was the unexpected one. As such, we are now in a new normal as the BOE and Fed embrace a tighter monetary policy.
The three-hour chart shows that the GBPUSD pair popped after the BOE decision. It rose to the highest level since December 1. The pair managed to move above the 25-day moving average and the Ichimoku cloud. The Relative Strength Index (RSI) has also been rising. Therefore, the pair will likely keep rising as bulls target the key resistance at 1.3500.