- BoE 9–0 hold signals shift towards inflation risks
- Front-end gilt yields surge on hawkish repricing
- Crude reverses sharply after earlier spike
- USD softens as yields fall and risk improves
GBP/USD delivered a bullish reversal on Thursday, breaking downtrend resistance in the process, driven by a mammoth repricing in UK rates, a sharp reversal in energy prices, and a late improvement in risk appetite.
Rate repricing lifts GBP
The initial push came from the Bank of England. Rates were left on hold at 3.75%, but the unanimous 9–0 vote surprised markets that were looking for a 7–2 split. That’s a clear shift from the prior 5–4 decision where concern about weakening activity dominated, suggesting those growth worries have now been superseded by rising inflation risks tied to the energy shock.
That hawkish shift hit the front end of the gilt curve hard, meaning the part of the market most sensitive to near-term interest rate expectations. Two-year yields jumped as much as 40 basis points at one stage to move back above 4.4%, a huge move in a single session, while market pricing for BoE rate hikes swung from roughly 20bps of tightening by year-end to around 65–70bps, bringing close to three hikes back into view.
That tells you the market rapidly shifted from seeing the BoE on hold, or even leaning towards cuts, to pricing a realistic chance it may need to tighten again if inflation pressures build.
Energy reversal hits dollar
Source: TradingView
The pound’s surge extended into the North American session as energy prices reversed sharply into the close. Brent fell around $11 from highs above $119 as traders responded to signs of increased supply, including potential easing of sanctions on Iranian crude and another possible US strategic reserve release.
With the USD still highly sensitive to moves in yields driven by energy, that reversal weighed on the dollar. Remarks from Israeli Prime Minister Benjamin Netanyahu that the Iran conflict could end sooner than many expect only added to the improvement in sentiment, helping GBP/USD build on the earlier BoE-driven gains.
GBP/USD breaks out
Source: TradingView
GBP/USD delivered a bullish key reversal on Thursday, breaking through downtrend resistance that had been in place from the highs set in January. The bullish signal and trend break suggests directional risks may now be tilting sideways to higher near-term.
While not an outright bullish signal yet, momentum indicators suggest downside strength is diminishing rapidly. RSI (14) has set higher lows and is now back at the neutral 50 level, while MACD has crossed above the signal line from below and is pushing higher. Should these trends persist, it would build confidence that the lows have been seen for now.
The 200-day moving average is the key level overhead, having consistently acted as support and resistance in the past. The pair had an initial breakout attempt fizzle, but price has not strayed far from it since, reinforcing its importance as the level bulls need to overcome to confirm Thursday’s price action.
A break and close above the 200-day moving average would bring the 50-day moving average into view, with minor resistance at 1.3586 and more meaningful resistance layered above 1.3700 up to the January 2022 high of 1.3749.
On the downside, a rejection from the 200-day moving average may see bids emerge ahead of 1.3350 given prior selling interest in that region, while a more pronounced support zone is located ahead of 1.3200, where the pair bottomed late last week.
