The GBP/USD rose after the Bank of England (BOE) delivered its May interest rate decision. The pair initially dropped to 1.3858 and then bounced back to 1.3917.
Bank of England decision
The BOE delivered a relatively modest interest rate decision. As expected, the central bank decided to leave interest rates unchanged at 0.10%. The vote was unanimous. The committee members also voted to maintain the pace of the 895 billion pound quantitative easing program. One member voted against the measure.
Are you looking for fast-news, hot-tips and market analysis?
Sign-up for the Invezz newsletter, today.
Further, as expected, the bank upgraded the outlook of the UK economy. It now expects that the economy declined by 1.5% in the first quarter. Further, it expects the GDP to recover sharply in the second quarter, helped by the country’s reopening and the government support policies. On inflation, it expects the headline CPI will rise to above 2% in the fourth quarter of the year. The bank said:
“The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”
UK economy doing well
Earlier today, the GBP/USD pair reacted to the relatively strong services PMI data. According to Markit, the services PMI increased from 56.3 in March to 61.0 in April. This increase was better than the expected increase of 60.1.
Earlier this week, data revealed that the manufacturing PMI also increased in April. As such, the composite PMI rose from 56.4 to 60.7. Therefore, there is an elevated possibility that the BOE will start tightening soon.
Like all major currencies, the next major catalyst for the GBP/USD price will be the US non-farm payrolls data (NFP) that will come out on Friday. Based by the robust ADP jobs data, there is a possibility that the US economy added more than 800k jobs in April. A strong jobs report will likely be bearish for the GBP/USD pair.
The chart shows that the GBP/USD rose after the BOE decision. The pair has also formed a symmetrical triangle pattern. In technical analysis, this is usually a sign that a breakout in either direction is about to happen. Therefore, since the pair has not broken out after the BOE decision, there is a possibility that it will do so ahead or after the NFP data.