Yesterday, the cable rose to the highest weekly level after the Bank of England’s interest rate decision.
At 12.00, as expected, the BoE left interest rates unchanged. As usual, this was expected and possibly didn’t matter much to traders.
Instead, they focused on the monetary policy statement accompanying the statement. They wanted to see the language used by the BoE when making the decision. They wanted to read the future.
In the policy statement, the BoE announced that the economy was expected to grow while inflation would peak up in the short term. This will be partly be caused by the higher energy prices. In addition to this, the more relaxed tone of the BoE was replaced by a more hawkish one.
Traders were also looking for dissenters among the committee members. There were none.
Later in the day, the pound, which had the most gains against the dollar today, lost part of the gains. Partly this happened as traders took profits they had made throughout the day.
Another reason for the reversal was that possibly traders saw the risks in the BoE’s statement. For example, in their statement, the BoE ignored the risks associated with Brexit.
This could be a significant turning point to the pound, which has made significant gains against the dollar.
As shown in the chart below, the chart seems to have formed a classic Elliot wave. For now, it has already completed wave four.
The pair could now move to complete the Elliot wave, which could see it touch the 1.3500 level, which is according to the chart, an important Fibonacci Retracement level.