The Monetary Policy Committee (MPC) has raised the interest rate in the UK by 25 basis points to 4.25 percent, its highest level since 2008.

On Thursday's London trading session (23rd March), GBP/USD reached a seven-week high range after the announcement of the UK interest rate but appeared to lack the energy to break the threshold of 1.2350. As the news was written at the beginning of the New York session, Sterling was observed to decline from its daily high record to 1.2325. The pound sterling's position was also relatively stable against the euro and yen.

gbpusdGBP/USD Daily chart via TradingView

The Monetary Policy Committee (MPC) raised the UK interest rate by 25 basis points to 4.25%, its highest level since 2008. Furthermore, the top policy-making team at the Bank of England (BoE) expressed commitment to raising interest rates again if necessary.

The decision was approved by 7 MPC members, while the other 2 suggested that the interest rate should remain at 4.00%. Market participants saw it as a hawkish signal, as no MPC members suggested a rate cut. Additionally, the latest economic projections were relatively better than those in February.

Market participants initially responded warmly to the BoE release, pushing the pound higher against some major currencies. But some analysts revealed hidden meanings behind the BoE MPC's statement, thus limiting the GBP/USD rally.

Nick Rees, FX market analyst at Monex Europe, argued that the BoE signaled that the interest rate had reached the terminal level, the highest level in a monetary tightening cycle. Rees highlighted that BoE emphasized that the CPI inflation rate for the services sector was 6.6% in February, or 0.1% lower than BoE's previous projection. If this specific data decreases again in the next inflation report, BoE is unlikely to raise interest rates again.

Not all analysts agree with this opinion. The consensus still projects a 25 basis point interest rate hike at the next BoE meeting. The BoE's Financial Policy Committee (FPC) stated that the UK banking system is strong enough to withstand the current volatility, giving MPC enough room to continue the rate hike.

The GBP/USD rate was also supported by Fed Chairman Jerome Powell's statement earlier today. Powell revealed that the Fed had considered stopping rate hikes due to the recent crisis in the US banking sector. Although the Fed ultimately decided to raise interest rates by 25 bps as expected by the market, the discussion of ending the monetary tightening cycle weighed on the USD.