GBP/USD spikes to monthly top, beyond mid-1.3300s after BoE raised bank rate to 0.25%

• GBP/USD witnessed an aggressive short-covering move after the BoE hiked interest rate to 0.25%.
• A hawkish (8-1) vote distribution was seen as a key factor that seemed to have surprised traders.
• COVID-19 woes could hold back bulls from placing fresh bets and keep a lid on any further gains.

The GBP/USD pair caught aggressive bets after the Bank of England (BoE) announced its policy decision and shot to a fresh monthly high, beyond mid-1.3300s in the last hour.

The British pound strengthened across the board after the BoE MPC voted 8-1 to hike benchmark interest rates to 0.25% from 0.1%. The decision seemed to have disappointed investors, anticipating that the UK central bank would push back its decision to hike rates amid the rapid spread of the Omicron variant. This, in turn, prompted some short-covering move around the GBP/USD pair amid the post-FOMC US dollar selling bias.

Apart from this, the strong move up could also be attributed to some technical buying on a sustained move beyond the 1.3300 round-figure mark. Hence, it remains to be seen if the momentum is backed by genuine buying interest or turns out to be a stop run amid the worsening COVID-19 situations in the UK. In the latest development, France announced that it will close borders for UK tourists from Saturday morning.

With the latest leg up, the GBP/USD pair has now rallied nearly 200 pips from the overnight swing low, around the 1.3170 region and seems poised to prolong its recent recovery move from the YTD low.

Technical levels to watch