GBP/USD falls back to pre-surprise BoE rate hike levels underneath 1.3300

• GBP/USD falls back to pre-surprise BoE rate hike levels underneath 1.3300
• Since losing its grip on the 1.3300 level, GBP/USD has been ebbing lower and is now trading in the 1.3270s.
• The pair is now back to its pre-surprise BoE rate hike levels.

Since losing its grip on the 1.3300 level, GBP/USD has continued to gradually ebb lower and, trading in the 1.3270s, is now all the way back to its pre-BoE policy announcement levels. Recall that the bank surprised markets with a 15bps rate hike on Thursday, sending GBP surging at the time (GBP/USD hit highs in the 1.3370s). Markets had expected the bank to hold off on rate hikes until February of next year given dovish rhetoric from BoE members earlier in the month/at the end of November about Omicron uncertainty.

On the week, GBP/USD is set to close roughly flat, with the pair one again bouncing from support at the 38.2% retracement back from the post-pandemic high (at 1.4250) to the post-pandemic low (at 1.4113), which sits close to 1.3170. It was not just a surprise BoE rate hike that came to GBP/USD’s rescue and prevented a break below the key Fibonnaci level and collapse towards the 50% Fib in the 1.2800s. Markets sold the US dollar in wake of the latest Fed policy announcement on Wednesday, which also gave GBP/USD a lift, despite the bank doubling the pace of its QE taper and indicating three hikes in 2022.

Looking back over the last few weeks, the 1.3370 area has been an important zone of support/now resistance and GBP bears appear to have taken the opportunity here to reload on shorts. If the dollar can continue to nurse a recovery in quiet, low volume pre-Christmas holiday trade next week and if the UK Omicron situation continues to deteriorate, there is no reason why GBP/USD can’t return to 1.3200 or under.