GBP/USD edges above 1.1400 as DXY eases marginally, BOE policy eyed

• GBP/USD has climbed above 1.1400 after a pullback move ahead of BOE policy.
• The risk-off profile has trimmed marginally and the DXY has slipped below 112.00.
• The pound bulls have rebounded as a rate hike by the BOE will trim Fed-BOE divergence.

The GBP/USD pair has witnessed fresh demand around 1.1380 and has scaled above 1.1400 in the Tokyo session after a perpendicular fall on Wednesday. The cable has attempted a rebound as the risk-off profile has eased marginally after remaining at the rooftop. S&500 futures have also attempted a recovery while the US dollar index (DXY) has shifted its auction profile below 112.00.

The pound bulls are gaining traction as a rate hike announcement by the Bank of England (BOE) in the European session will trim the Federal Reserve (Fed)-BOE policy divergence. Fed chair Jerome Powell announced a fourth consecutive 75 basis points (bps) rate, which pushed interest rates to 3.75-4%. Now, the extent of the BOE’s rate hike will determine the decline in the Fed-BOE’s policy divergence.

Economists at Goldman Sachs came forward with a projection of 75 basis points (bps) as price growth has reclaimed a double-digit inflation rate. While economists at ING believe that BOE Governor Andrew Bailey will continue with a 50 bps regime as volatility infused in the UK financial markets after the disaster of the mini-budget has been shrugged-off post after the appointment of Rishi Sunak for novel leadership.

Apart from that, a new plan of liquidity tightening from UK PM Rishi Sunak and Chancellor Jeremy Hunt by tweaking fiscal policy will also support BOE’s price stability plans. UK administration has announced spending cuts and tax rise to curb the debt crisis. Now, the conjunction of tight monetary policy and fiscal policy will provide synergy in the fight against the inflation monster.