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  • GBP/USD witnessed a dramatic intraday turnaround in reaction to the BoE announcement.
  • An optimistic economic outlook prompted some aggressive short-covering around the GBP.
  • The BoE left doors open for negative interest rates and capped any further gains for the pair.

The GBP/USD pair recovered its intraday lost ground to over two-week tops and rallied back closer to mid-1.3600s in reaction to the BoE announcement.

The Bank of England, as was widely anticipated, left the benchmark interest rate and the size of the Asset Purchase Facility unchanged at 0.10% and £895 billion at its first meeting of the year. In the accompanying statement, the UK central bank reiterated that the existing stance of monetary policy remains appropriate and sounded optimistic about the economic outlook.

In the GDP is projected to recover rapidly towards pre-virus levels over 2021 and inflation is expected to rise quite sharply towards the 2% target in the spring. This, in turn, seemed to be the only factor that provided a strong boost to the British pound and prompted some aggressive short-covering move around the GBP/USD pair.

That said, the BoE clarified that it does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. Adding to this, the BoE showed readiness to opt for negative interest rate policy if needed.

The GBP/USD pair struggled to capitalize on its strong intraday rally of around 80 pips as market participants now look forward to the post-meeting press conference. Comments by the BoE Governor Andrew Bailey will be scrutinized closely and might infuse some volatility around the sterling, assisting traders to grab meaningful opportunities.

Technical levels to watch