BOE Pill: Sees the need to raise the bank rate to 4.00%. GBPUSD moves higher on the news.

Bank of England Chief Economist Huw Pill is speaking and says:My own response has pointed to a need to raise Bank Rate to 4%.Raising Bank Rate on this basis need not be the start of a prolonged and aggressive series of increases.A prompt increase in Bank Rate may serve to head off some of the potential insidious “catch-up” dynamics.Clear, prompt and decisive policy action and communication would help steer markets and reduce uncertainty.The MPC should be cautious about using relatively extreme “what if” scenarios to explain its analytical framework.Fine tuning interest rates in the face of uncertainty about energy prices is problematic. Reasons to believe that second-round effects is now will be stronger than estimated in Halcyon days of inflation targetingPill’s comments lean hawkish, although he is putting limits on how far that message should be taken. The clearest signal is his call to raise Bank Rate to 4% and his argument for acting promptly. He is concerned that waiting could allow inflation pressures to spread, forcing the BOE to play catch-up later with more tightening.For newer traders, “second-round effects” mean an initial increase in energy costs spreads into wages and other prices. Workers seek higher pay to cover living costs, while businesses raise prices to protect margins. That can make inflation more persistent, even after the initial energy shock fades. Pill’s warning that those effects could be stronger than in the past adds to the hawkish tone.The qualification? He says an increase does not need to mark the start of a prolonged or aggressive hiking cycle. Putting it another way, he favors a prompt adjustment but is not signaling a series of hikes.For the GBP, that message would generally be supportive if it pushes rate expectations above what traders have already priced in. The market reaction depends on that shift in expectations. The takeaway is hawkish on the need to act, but measured on what comes afterward.The GBPUSD has moved higher following the hawkish comments from Bank of England Chief Economist Huw Pill, and that move is starting to improve the short-term technical picture for buyers.More specifically, the price has broken above the falling 100-hour moving average at 1.35206. Near that level is the previously broken 38.2% retracement of the move higher from the end-of-July low. The price is therefore moving back above two technical reference points that help traders define the bullish or bearish bias.Why does that matter?For newer traders, a moving average helps smooth out the price action and provides a reference point for judging momentum. When the price trades below the 100-hour moving average, the short-term bias is generally more bearish. Moving back above it is a step in the buyers’ favor. The 38.2% retracement measures how much of the earlier rally has been given back. Reclaiming that level adds to the improving technical picture.With those two tools coming together near the same area, traders have a more clearly defined level to watch. The buyers have made a break. Now they need to show they can sustain it.Putting it another way, moving above resistance is the first step. Staying above it is what gives the break more credibility. If the price rotates back toward the 1.35206 area and buyers step in, that would suggest the former resistance is becoming support. That area also becomes a reference for defining risk. A move back below it would weaken the bullish argument and raise the possibility that the break higher has failed.On the topside, the next target comes against a swing area between 1.3543 and 1.3557. A swing area is a zone where previous highs and lows provide reference points for traders. Because the market has reacted around those prices before, traders watch to see whether sellers defend the area again or buyers can push through it.That makes this zone the next test. Getting to it would extend the recovery. Getting above it—and staying above it—would show that buyers are making further progress.Beyond that area, the falling 200-hour moving average at 1.3567 becomes the focus. That moving average tracks a longer period of price action than the 100-hour moving average, making it another important hurdle for the recovery. A sustained break above it would put the price above both hourly moving averages and give buyers firmer control of the short-term technical picture.There is still work to do. Both moving averages are falling, reflecting the weakness that preceded this bounce. The move above the 100-hour moving average is an encouraging first step, but it does not guarantee that the next resistance levels will give way.The comments from Pill provided the catalyst. The price action and technical tools now help traders judge whether that initial reaction can develop into a more sustained move. Stay above the 1.35206 area, and buyers have a foundation to build on, with 1.3543–1.3557 and then 1.3567 as the next hurdles. Move back below, and the buyers’ progress starts to unravel. This article was written by Greg Michalowski at investinglive.com.