Is the GBP/USD a buy or sell after the BOE rate decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Aug 5, 2021
  • The GBP/USD pair darted higher after the latest BOE decision.
  • The bank decided to leave interest rates and quantitative easing policy unchanged.
  • It hinted that tapering of asset purchases is around the corner.

The British pound (GBP/USD) rose on Thursday after the Bank of England delivered its August interest rate decision. The pair rose to 1.3925, which was about 2.6% above the lowest level in July. 

Bank of England decision

The BOE concluded its monetary policy meeting on Thursday. Like other key central banks like the Federal Reserve and the European Central Bank (ECB), the BOE decided to leave interest rates unchanged at 0.10%. 

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The bank also decided to leave its £875 billion quantitative easing policy unchanged as it tries to support the economy. 

The BOE decision came at a time when the UK economy is at a delicate place. While it has staged a strong recovery, more than 1.9 million people are still in the furlough program. This program is providing them a substantial amount of money every month. The government is set to unwind this program in September, which could push the unemployment rate higher.

Further, UK inflation has overshot the Bank of England’s target of 2.0%. It has remained above this level in the past three straight months. Analysts expect that the rate will likely peak at around 3%. In its statement, the bank said that the current inflationary pressures are temporary. It said:

“CPI inflation is projected to rise temporarily in the near term, to 4% in 2021 Q4, owing largely to developments in energy and other goods prices, before falling back to close to the 2% target.”

The next main catalyst for the GBP/USD is economic data from the US. The US Commerce Department will publish the latest trade numbers. The Labour Department will also release the latest initial jobless claims numbers. 

And on Friday, the department will release the latest non-farm payrolls (NFP) data. These are important numbers because they will show the strength of the American economy. Strong numbers could push the Fed to start tightening its policies.

GBP/USD analysis

GBP/USD

The 3H chart shows that the GBP/USD has made a strong recovery recently. Along the way, it has formed an inverted head and shoulders pattern. It has also formed a bullish flag pattern. It has also moved above the dots of the Parabolic SAR and the Ichimoku cloud. Therefore, the pair will likely keep rising, with the next target being at 1.4050. On the flip side, a drop below the 50% retracement level at 1.3900 will invalidate the bullish view.

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