GBP/USD retreats from post-BoE swing high, trades with modest gains below 1.3600

• GBP/USD struggled to capitalize on the post-BoE bullish spike to a two-week high.
• The intraday USD buying interest turned out to be a key factor that capped gains.
• Rebounding US bond yields, hawkish Fed expectations extended support to the USD.

The GBP/USD pair faded the post-BoE bullish spike to a fresh two-week high and was last seen trading with modest intraday gains, just below the 1.3600 mark.

The pair caught aggressive bids and rallied nearly 100 pips from the daily swing low, around the 1.3535 region, after the Bank of England announced its policy decision. As was widely expected, the UK central bank raised its benchmark interest rate by 25 bps to 0.50%. The hawkish tilt came from the vote distribution, wherein four out of nine MPC members voted for a 50 bps rate hike. This indicated that policymakers are keen to act amid rising inflationary pressures and provided a strong boost to the British pound.

Adding to this, policymakers also vote 9-0 to start unwinding the £895 billion quantitative easing program by ceasing reinvestment, starting with a maturity of March 2022 gilt. In the post-meeting press conference, the BoE Governor Andrew Bailey said that some further modest tightening is likely in the coming months. This further acted as a tailwind for sterling and pushed the GBP/USD pair to the 1.3625-1.3630 area, though the momentum ran out of the steam amid a goodish pickup in demand for the US dollar.

Despite the fact that Fed officials downplayed the prospects for a 50 bps rate hike in March, traders seem convinced that the Fed will tighten its policy at a faster pace than anticipated. This, along with a fresh leg up in the US Treasury bond yields and a softer tone around the equity markets, extended some support to the greenback. This, in turn, was seen as the only factor that capped the upside for the GBP/USD pair, instead attracted some selling at higher levels and led to a pullback of around 50 pips.

On the US economic data front, the Weekly Initial Jobless Claims fell to 238K during the week ended January 28 as against market expectations for a reading of 245K and the 261K previous. This, however, did little to provide any meaningful impetus, albeit remained supportive of the intraday USD strength. Thursday's US economic docket also features the release of ISM Services PMI, which might allow traders to grab some short-term opportunities around the GBP/USD pair. the focus would then shift to the US NFP report on Friday.

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