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GBP/USD. Results of the Bank of England meeting: score is 7:2, but the pound did not lose

The pound cheered up against the dollar today after a multi-day prolonged decline. Following the results of yesterday, the GBP/USD pair updated the local low, falling to the base of the 36th figure. The results of the September Federal Reserve meeting turned out to be in favor of the greenback, so the bears were able to update the multi-week low (1.3608). Today, the pound jumped, returning to the area of the 37th figure. Following the Fed, the Bank of England came to the forefront, which also tightened the tone of its rhetoric. And although both the Fed and the British central bank left the parameters of monetary policy in the same form, the general mood of these central banks allowed the GBP/USD pair to arrange a price rally – first down, and then up.

The surprise factor is a fairly powerful trump card for traders. Yesterday, it helped the GBP/USD bears to update the local low, today it helped the pair's bulls to regain lost positions.

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The Fed, by and large, implemented a widely expected program, confirming the assumptions of most experts. And yet, peculiar surprises of a hawkish nature took place. Due to this, the greenback actually remained in the same positions in some pairs, while it increased its weight in others. What surprises are we talking about? For example, to the surprise of some analysts, the US central bank expressed its readiness to curtail the incentive program in November. The central bank decided not to wait for the last meeting of this year – the December meeting. Although many experts were sure that the central bank would postpone the adoption of the relevant decision until the end of the year.

The Fed's spot forecast was also surprising. Compared to previous forecasts, the September "dot plot" turned out to be more hawkish. Eight representatives of the Committee allowed an increase in the interest rate next year. If the year 2022 is still missed, then a triple (and not double) rate hike is expected in 2023. Of course, all these hawkish assumptions were accompanied by numerous "but" and "if". However, in general, the Fed showed character and declared a course for the normalization of monetary policy. Fed Chairman Jerome Powell voiced the existing risks in his usual manner, but his cautious rhetoric was of a "formally familiar" nature. At the same time, he confirmed that the central bank plans to complete the incentive program in the middle of next year, and start this process in November of this year. Therefore, in my opinion, the dollar can now exert background, but very stable pressure on those currencies whose central banks take a wait-and-see and/or dovish position (in particular, the European Central Bank, the Reserve Bank of Australia, the Bank of Japan).

However, if we talk about the pound-dollar pair, the situation here does not look so unambiguous. The aforementioned "surprise factor" also supported the British currency today, which strengthened throughout the market. As mentioned above, the BoE has kept all the parameters of monetary policy in the same form. Nevertheless, the general mood of the British central bank was more hawkish in relation to previous forecasts.

Thus, two members of the Committee out of nine voted for the early curtailment of the government bond purchase program. Dave Ramsden joined his colleague Michael Saunders in voting for a reduction in QE. Saunders has consistently voted for this decision since May of this year, and now he has been accompanied by Ramsden, who in early September urged his colleagues to start the process of normalizing PREP as soon as possible. As a first step, he proposes to reduce the target for buying securities to 840 billion pounds.

Thus, the overall score on the issue of curtailing QE was 7: 2-so far in favor of the conservative-minded members of the Bank of England. But analysts have already noted the beginning of a shift towards a more hawkish mood. This step, in their opinion, increases the chances that quantitative easing will end earlier than expected. In an accompanying statement, the BoE indicated that "a slight tightening of policy over the foreseeable period is likely to be necessary to achieve the inflation target."

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In other words, the BoE strengthened its hawkish position, following the Fed. And although the British central bank did not indicate any deadlines regarding the curtailment of incentives and the first rate hike, it made it clear that in the foreseeable future it intends to move towards the normalization of monetary policy (with subsequent tightening of its parameters).

Thus, the pound has received a certain trump card today, which will also be used against the greenback. And if the current growth of the EUR/USD pair can be explained by a corrective rebound (since the ECB is an adherent of the dovish policy), then the growth of the GBP/USD pair may be more protracted. In the short term, the pair is most likely to reach the resistance level of 1.3780 (the average BB line coinciding with the Tenkan-sen and Kijun-sen lines, as well as with the lower border of the Kumo cloud on the daily chart). If bulls settle above this target, in the medium term, it will be possible to consider long positions on 1.3870 – this is the upper limit of the Kumo cloud on the same timeframe.

The material has been provided by InstaForex Company - www.instaforex.com