The Bank of England still gave the markets a surprise in the form of a rate increase. Investors and economists, just in case, allowed such a possibility, estimating it at 40%, but no one expected such a sharp transition to a tightening regime.
At the November meeting, the committee members surprised with their dovish attitude and nothing foreshadowed such a reversal, especially since Omicron appeared on the horizon. Market players were certain that the central bank would not raise the rate due to the spread of the new strain. But no, the central bank decided to surprise the markets by raising the rate in December. Perhaps the pressure on the BoE's management was influenced by the sudden aggressive growth of British inflation in November.
The Committee consists of nine voting members. The decision to increase the bank rate to 0.25% from 0.1% was made almost unanimously, only one member (Silvana Tenreyro) expressed her disagreement.
Omicron did not influence the decision to raise rates, but was forced to adjust the forecast for economic growth in December and the first quarter of 2022.
The Committee voted unanimously not to change the target program for the purchase of government bonds at the level of 875 billion pounds ($ 1.16 trillion). It was also reported that the central bank bought corporate securities worth 20 billion pounds.
The pound reacted with a sharp increase, the GBP/USD pair at the moment rose by 0.8% to 1.3366. The yield on 10-year bonds jumped by 6 bps to 0.80%.
"Some moderate tightening of monetary policy during the forecast period is likely to be necessary to sustainably achieve the 2% inflation target," the financiers comment.
Investors took this as a signal. Money markets, apparently, are ready to be laid for the next tightening of policy, which may occur in February. The bank may additionally raise the rate by 25 bps By September 2022, it may already reach 1% by September, according to Reuters.
In this scenario, the pound has a great future, bulls will start pushing it up on expectations of another monetary tightening. Coincidentally, the dollar now has a pause in growth. Another big event risk for the dollar after the Federal Reserve meeting is the calendar transition to the New Year. The prospective growth of the dollar should be expected closer to spring, and now a technical correction is most likely.
It is important that the GBP/USD pair broke through the resistance level of the bearish channel - 1.3265 and settled higher. This indicates the activation of a bullish scenario. At the moment, the resistance of 1.3350 was taken, but it has not yet been possible to hold it. The reaction was more emotional on Thursday, in the coming days market players will analyze the bank's actions and the picture for the pound will become more clear. The next resistance after 1.3350 is 1.3415. Support is located at 1.3195, 1.3130, 1.3080.
Meanwhile, the traders of the pound have something to think about, Britain reports a new large increase in diseases with the Omicron strain. The daily increase was more than 78,600, while the day before, 59,600 cases were identified. The rate is the highest since the start of the pandemic.
The speed of spread continues to worry the British authorities, against this background, speculation about lockdowns is actively growing. Pound bulls are unlikely to like this state of affairs. However, at the moment, statistics on the severity of the disease are much more important than the overall increase.
However, the BoE has made it clear that the UK and the global economy are in a "significantly different" situation than at the start of the pandemic. Inflation causes many questions and concerns now.
The central bank is more focused on "growth risks" around pay trends. It is also focused on the absence of any signs of a jump in unemployment after September 30, when the government program to support employment ended. Unemployment is expected to fall to 4% by the end of the year, well below the 4.5% forecast made just last month.