Market news

16 December 2021

GBP/USD climbs to near two-week high, around 1.3300 mark ahead of BoE decision

  • GBP/USD gained strong traction for the second successive day and shot to a near two-week high.
  • The risk-on mood forced the USD to prolong the post-FOMC slide and continue lending support.
  • The focus remains glued to the BoE policy decision amid worries over the Omicron variant fears.

The GBP/USD pair shot to a near two-week high during the first half of the European session, with bulls now awaiting a sustained strength beyond the 1.3300 mark.

The pair built on the previous day's post-FOMC solid bounce from the 1.3170 region and gained strong follow-through traction for the second successive day on Thursday. The US dollar prolonged its retracement slide from the vicinity of a 16-month high, which, in turn, was seen as a key factor driving the GBP/USD pair.

It is worth recalling that the greenback initially rallied after the Fed's so-called dot plot showed that officials expect to hike rates at least three times next year. The USD bulls, however, were quick to take profits off the table as the markets had been pricing in the prospects for a faster policy tightening by the Fed.

Apart from this, the prevalent risk-on mood – as depicted by a generally positive tone around the equity markets – further undermined the safe-haven buck. That said, diminishing odds for an imminent interest rate hike by the Bank of England might act as a headwind for the British pound and cap gains for the GBP/USD pair.

Most analysts believe that fresh economic turmoil led by the new Omicron variant could persuade the UK central bank to hold its fire. Hence, the market focus will remain glued to the BoE monetary policy decision on Thursday. In the meantime, the mixed release of UK PMI prints did little to provide any impetus to the GBP/USD pair.

Later during the early North American session, traders might take cues from the US economic docket, featuring the release of the Initial Weekly Jobless Claims, Philly Fed Manufacturing Index, Industrial Production and flash PMIs. This, along with the BoE/ECB-inspired volatility, should produce some trading opportunities around the GBP/USD pair.

Technical levels to watch

 

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