The Bank of England surprised the market by raising the rates by 50 basis points to 5%. The decision, which was only priced in by 30%-40% beforehand, demonstrates the decisiveness of the BOE members. With 7 votes in favor, the rate hike indicates a hawkish stance. Additionally, today’s stronger than expected retail sales data further supports the expectation of a total of 4 more rate hikes, as indicated by the pricing in the swap market.

Although GBPUSD has already broken out of its three-year downtrend (white trendline), it has not yet surpassed the Fibonacci 61.8% extension level at 1.2850. Following the BOE decision, GBPUSD made another attempt at this resistance level but experienced a strong downward reaction once again. Hours after the decision, Powell hinted at the possibility of one or two rate hikes later this year, along with a potential increase in capital requirements up to 20% for banks exceeding $100 billion. These developments are expected to tighten financial conditions, leading to a rise in the dollar index.

As long as the uptrend channel formed since October remains intact and GBPUSD stays above the broken trendline, any downward movements could be viewed as buying opportunities. In this context, the support levels to watch in the short term are 1.2675, 1.2580, and 1.2450. To reach higher levels, GBPUSD must break above the resistance at 1.2850. However, if the uptrend fails to hold, GBPUSD bears may regain an advantage, potentially increasing selling pressures in the near future.