Following its June policy meeting, the Bank of England (BOE) announced a 50 basis point (bps) increase in the policy rate to 5%. Markets expected the BOE to raise its policy rate to 4.75%.
The BOE said in its policy statement, "if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required." The BOE also stated that recent data with major upside surprises indicate increased persistence in UK inflation.
With the first reaction, GBP/USD gained positive momentum and soared over 1.2800.
The Bank of England announces its interest rate decision. If the Bank of England is concerned about the economy's inflationary prospects and hikes interest rates, the GBP will benefit. Similarly, if the BoE has a dovish assessment of the UK economy and maintains or decreases interest rates, it will be viewed as unfavorable, or bearish.
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