Jump to content

UK rates to top 1% as BoE tightening continues


Recommended Posts

A 25 basis point hike in UK rates might not do much for the pound in the short-term, especially when set against the Fed’s more hawkish comments.

Bank of EnglandSource: Bloomberg
 
 Chris Beauchamp | Chief Market Analyst, London | Publication date: Tuesday 03 May 2022 

What to expect from the Bank of England?

The UK’s Monetary Policy Committee (MPC) is expected to raise rates by 25 basis points to 1%, the highest level in 13 years.

What else might it say?

As with the Federal Reserve (Fed) meeting the previous day, the actual rate hike decision is very much priced into markets at present. The March meeting saw the MPC ease back on some of the hawkish rhetoric, as it assessed the impact on the British economy, the overall plan to tighten rates remains intact.

UK inflation continues to run at a high level, so we should expect further rate hikes later in the year, with 25 basis point moves still the most likely course of action. While this means the pound will remain under pressure vis-à-vis the US dollar, it allows the bank to proceed with its hiking policy without putting too much pressure on the economy, which remains in a weaker position than its US counterpart.

In addition, we will also potentially get more detail on how the bank will begin unwinding some of its balance sheet. The MPC has already said that it will stop reinvesting the proceeds of its bond purchases, but a move to outright selling is still viewed as potentially disruptive, so a tentative timetable may be all we get this time around.

What will happen to the pound?

After the impressive move to the downside since late March, much of the bank’s cautious outlook seems priced in. But as ever GBP/USD is not just about what the Bank of England (BoE) does, but what the Fed is doing too. Here the pound finds itself firmly on the defensive – set against the increasingly hawkish Fed rhetoric, it may struggle to gain traction.

While the BoE plods along with 25 bps increases, the Fed is moving to 50 bps, and some on the Federal Open Market Committee (FOMC) are even calling for 75 bps as a means of getting ahead of inflation. I

n the short-term, there may be little real movement in GBP/USD, unless the Fed is even more hawkish at its upcoming meeting. But the recent run of strength in the dollar seems relatively spent, which provides scope for a counter-trend rally in GBP/USD that could see it head back towards $1.30.

This, however, still favours a bearish outlook, and would give sellers the chance to move on cable once again, but with a better risk-reward outlook in the medium-term than chasing it down at its current level and in the wake of the steep decline of the past four weeks.

GBP/USD chartSource: ProRealTime
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      22,098
    • Total Posts
      92,955
    • Total Members
      42,476
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    calwall77
    Joined 01/06/23 20:51
  • Posts

    • Look ahead to 2/6/23: US jobs; Baker Hughes rig count After the stronger than expected private payrolls number from ADP, risks would seem to be on the upside for the US non-farm jobs number on Friday.  Jeremy Naylor | Analyst, London | Publication date: Thursday 01 June 2023  IGTV’s Jeremy Naylor looks at USD/JPY as a potential trade. Outside of this watch Brent around the Baker Hughes rig count.            
    • What's the next move following the bank run that led to a rally in US stocks? The markets have been giving us hints on its coming trend, which markets are they? Deploying market psychology not only helps us to connect the dots in today’s complexity, it also gives us the simplicity to chart into the future. In this session, we have invited market veteran, Wong Kon How, to help you improve your trading literacy and successfully navigate the financial markets. Kon How will demonstrate how he understands today’s market complexity and seizes the coming opportunity with behavioral science.  
    • Charting the Markets: 1 June Dow and CAC40 stabilise while Nasdaq 100 edges down. EUR/USD, EUR/GBP and USD/CAD stabilise as US debt ceiling bill goes to Senate. And Brent, orange juice stabilise while copper advances as US debt ceiling bill gets signed. Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Thursday 01 June 2023               This is here for you to catch up but if you have any ideas on markets or events you want us to relay to the TV team we’re more than happy to.
×
×
  • Create New...