Bank of England, London. Image source: Robert Cutts, flickr.com
Bank of England's decision represents the first significant response to the soaring inflation of a major central bank, which is likely to underpin future policy alterations by the other banks. This would have a profound effect on lower-risk securities. To learn more, check out our last analysis of gold.
The Monetary Policy Committee (MPC) of the Bank of England expectedly decided to lift the Official Bank Rate by 0.25 per cent to 0.50 per cent, in a bid to stem inflation growth. The decision is also predicated on the robust pace of economic stabilisation, which is why the pound rose immediately following the policy change announcement.
GBPJPY 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
The news catalysed an upsurge on the pound, as shown on the 4H chart above. The price action of the GBPJPY is currently probing the upper limit of the Flag pattern, which represents a break in the broader Markdown. Thus, the price action is currently attempting to break the broader Wyckoff Cycle.
The upsurge, which commenced from the 100-day MA (in blue), is also attempting to close above the 23.6 per cent Fibonacci retracement level at 155.699. If successful, its next likely target would be the upper limit of the last Distribution range at 157.500.
Conversely, a reversal from the 23.6 per cent Fibonacci could then be followed by a dropdown to the 38.2 per cent Fibonacci at 154.419 and continuation of the broader Markdown. Notice that the 50-day MA (in green) is currently converging with the 38.2 per cent Fibonacci, making it a stronger support level.
BOE's unanimous monetary policy decision
The Monetary Policy Committee voted by a majority of 5-4 to increase #BankRate to 0.5% and voted unanimously to begin to reduce the amount of quantitative easing. Find out more in our #MonetaryPolicyReport: https://t.co/UT5RX7qzHv pic.twitter.com/l5N4OIno5v
— Bank of England (@bankofengland) February 3, 2022
Five members of the Committee voted to increase the interest rate by 0.25 percentage points, while the other four members preferred a broader increase of 0.50 percentage points. Additionally, the MPC decided to dial back the scope of its quantitative easing programme effective immediately:
"The Committee voted unanimously for the Bank of England to begin to reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets."
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