GBP/USD jumps to three-day tops, retakes 1.3700 mark post-BoE

• GBP/USD witnessed an aggressive short-covering on Thursday amid renewed USD weakness.
• The intraday momentum got an additional boost in reaction to a more hawkish BoE statement.
• The stage now seems set for a move towards testing the next relevant hurdle near mid-1.3700s.

The GBP/USD pair shot to three-day tops after the Bank of England announced its policy decision, with bulls now looking to build on the momentum beyond the 1.3900 mark.

The pair managed to find decent support just ahead of the 1.3600 round figure and witnessed an aggressive short-covering move on Thursday amid a broad-based US dollar weakness. In fact, the key USD Index has now erased the previous day's post-FOMC gains to one-month tops, which, in turn, was seen as a key factor that provided a strong lift to the GBP/USD pair.

The Fed on Wednesday indicated that it will likely begin reducing its monthly bond purchases toward the end of this year. This, however, disappointed some investors expecting an immediate start to the withdrawal of the massive pandemic-era stimulus. Apart from this, the prevalent risk-on environment exerted additional pressure on the safe-haven greenback.

Meanwhile, the sterling got an additional boost in reaction to a more hawkish BoE statement. The UK central bank left its policy settings unchanged at the end of the September meeting but indicated that a modest tightening over the forecast period was likely to be necessary. This was enough to inspire bullish traders and provide an additional lift to the GBP/USD pair.

The markets now seem to have started pricing in the prospects of an early rate hike and now see the benchmark BoE rate at 0.5% in September 2022, earlier than November 2022 before the announcement. This might have already set the stage for additional gains. Hence, a subsequent move towards testing the next relevant hurdle, near mid-1.3700s, remains a distinct possibility.

Technical levels to watch