• GBP/USD is expected to extend gains above 1.2170 as BOE rate hike will trim Fed-BOE policy divergence.
• BOE Andrew Bailey may announce a rate hike by 50 bps.
• The DXY has turned volatile on escalating Sino-US tensions.

The GBP/USD pair has displayed a minor pullback after failing to recapture the 1.2170 hurdle. However, the upside remains favored as the US dollar index (DXY) is likely to extend losses below 106.30. Broadly, the asset has resumed its upside move after a healthy correction to the round-level support of 1.2100.

The cable could display some volatile moves ahead as investors are eyeing the monetary policy announcement by the Bank of England (BOE). Taking into account the market expectations, BOE Governor Andrew Bailey will elevate the interest rates to 1.75% as a consecutive 50 basis points (bps) rate hike is expected.

No one could deny the fact that households in the UK are facing severe heat of soaring price pressures. The inflation rate has climbed to 9.4% and no signs of a peak have been observed yet. The ongoing momentum in the price rise could lift the inflation rate to a two-digit figure and the consequences will be borne by households by higher payouts for similar quantities purchased.

Well, a rate hike by 50 bps to combat the inflation monster is not sufficient. But poor growth forecasts and a lower Labor Cost Index are not supporting the BOE to sound extremely hawkish.

On the dollar front, the US dollar index (DXY) is witnessing uncertain moves as US House Speaker Nancy Pelosi's visit to Taiwan has strengthened prolonged Sino-US tensions. The mighty US is holding the global leadership for a longer period and China is eagerly looking to get the batch. Therefore, the support of the US to Taiwan, a country with immense potential of technological advancement has escalated US-China tensions.