The pound sterling skyrocketed by 200 pips just after the publication of the BoE meeting results. The Bank of England raised the benchmark rate to 1.25% from 1.00%. However, the British pound was mainly boosted because three out of nine BoE Board members voted for a sharper rise of 0.50%.
Commenting on the decision, the regulator clarified that it might accelerate the pace of monetary policy tightening at the following meeting. It means that in just one month and a half, the key interest rate may total 1.75%, significantly exceeding expectations.
The regulator is planning to raise interest rates even more. On top of that, unlike the Fed, the Bank of England does not blame Russia or China for surging prices. In general, the regulator unveiled a clear plan of its future actions, thus causing a jump in the British pound.
After such a rally, the pound sterling retracted. Today, the currency may resume gaining in value and surpass 1.2400. The rise could be spurred by the US industrial production report, which may unveil a smaller rise of 4.9% compared to 6.4% in the previous period. It is a considerable slowdown that may negatively affect the greenback.
Technical Outlook
In the last two days, the pound sterling surged by more than 400 pips against the US dollar. It is a significant price change in a short period, which points to overheating long positions in the short-term period.
On the one-hour chart, the RSI technical indicator reached the overbought area, thus causing a slowdown. In the four-hour period, the indicator moves in the upper area of 50/70, which points to a corrective movement. However, on the daily chart, we see that the indicator is still in the lower area of 30/50, thus reflecting a downtrend.
In the four-hour period, the Alligator’s moving averages changed their direction from downward to upward. This change proves the corrective movement. On the daily chart, the indicator still points to the downtrend since there are no intersections between its moving averages.
Since the British pound has already reached its overbought levels, the correction may slacken, and the trading sentiment may start changing. In this case, the currency may decline, thus allowing the US dollar to recoup some of its losses.
The alternative scenario will become possible if the price consolidates above 1.2400 on the four-hour chart. In this case, speculators may ignore the overbought conditions and push the British pound to the mirror level of 1.2500.
Regarding the complex indicator analysis, we see that technical indicators are signaling sell opportunities in the short-term period amid a slower correctional movement. In the intraday period, the indicators provide a residual buy signal thanks to the ongoing correction. In the mid-term period, the indicators reflect the downtrend.
