GBP/USD tilts upwards as focus shifts to BOE and Powell testimony

The GBP/USD is inching upwards as attention shifts to the upcoming Bank of England (BOE) interest rate decision. The pair rose to 1.3843, which was slightly higher than last week’s low of 1.3785. 

Bank of England decision

The GBP/USD crashed last week as the US dollar rally accelerated after the Fed interest rate decision. The pair declined to the lowest level since April after the Fed pointed to an interest rate hike in 2023. As a result, the bank is expected to start tapering its $120 billion per month asset purchases in the near term. This week, the pair will react to the latest testimony by Jerome Powell. 

The biggest catalyst for the GBP/USD will be the Bank of England (BOE) interest rate decision that will come out on Thursday. The bank is expected to leave its interest rate and quantitative easing policy unchanged. Still, investors will be looking at the tone of the bank. Precisely, they will be looking at whether the bank will point to a 2022 or 2023 interest rate hike. In a note, analysts at ING believe that the bank will point to a 2023 hike. They wrote:

“For now, we’re in the camp looking for the first rate hike in 1Q23. Headline inflation is likely to touch 2.5% later this year, but is likely to die down into mid-2022 as the reopening spikes of the next few months fade”

The BOE decision comes at a time when data from the UK has been relatively strong. Consumer inflation has already risen to the BOE target of 2.0%. At the same time, the unemployment rate has declined from more than 5% to 4.8% while house prices have jumped by more than £20,000 in the past 12 months. The manufacturing and services sectors have also rebounded. The biggest challenge is that the country has started seeing more coronavirus cases in the past few weeks.

GBP/USD technical analysis

The four-hour chart shows that the GBP/USD pair declined sharply last week. The pair managed to move below the important support at 1.4095, which was the neckline of the head and shoulders pattern. It has also moved below the 25-day and 15-day exponential moving averages (EMA). Therefore, the pair may keep falling as investors target the next key support level at 1.3750 before the BOE decision.