Jump to content

BoE preview – rate hike pace to slow​​​​

Recommended Posts

The Bank of England is expected to raise rates by 50bps this week, but can the pound continue its recent good run against the dollar?

BG_bank_of_england_boe_london_080980.jpgSource: Bloomberg

 Chris Beauchamp | Chief Market Analyst, London | Publication date: Wednesday 14 December 2022 

Bank of England to boost rates again

After November’s bumper 75 basis point (bps) hike, the Bank of England (BoE) is expected to round off 2022 with another rate hike, this time of 50bps.

November’s move was designed to both reassure markets that the BoE was determined to fight inflation, but also to indicate that the bank was considering how to slow the pace of hikes into 2023. Pushing rates to an ultimate level of 5% would result in an inflation undershoot in two years according to BoE forecasts, and so the members of the Monetary Policy Committee (MPC) were determined not to suggest that November’s move marked the beginning of a sustained period of sharp rate hikes similar to that conducted by the Fed in the second half of 2022.

A 75bps move this week would be a surprise development, but while UK inflation shows little sign of slowing down in its pace (unlike in the US), the BoE remains concerned about pushing the economy into a deeper recession. The pound has also risen, which has helped moderate the impact of imported inflation, and investors are firm in their view that a 50bps move is all that they can expect on Thursday.

Wednesday’s inflation data did show a slowing of price increases, which is enough to give the BoE cover to hike at a slower pace. Of course it is only one month’s data, but at this point the MPC will take anything they can get on this score.

Pound could struggle despite rate hike

The pound has seen a remarkable recovery against the dollar from its September low. The currency has gained over 20% from the panic low near $1.03.

But with the BoE likely to halt its hikes after February and the economic outlook still tough, the pound might struggle to maintain upward momentum. The dollar may well weaken further, helping to support GBP/USD, but unless the UK’s outlook improves materially the BoE will have to err on the side of caution.

The pair has pulled away from trendline support, so a reversal could take the price back towards $1.18 and still leave the bounce intact. Additional gains would target the May high at $1.2675.

GBPUSD_131222.pngSource: 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
    • Total Posts
    • Total Members
    • Most Online
      10/06/21 10:53

    Newest Member
    Joined 07/06/23 06:10
  • Posts

    • The US Securities and Exchange Commission (SEC) has sued cryptocurrency platform Coinbase the second lawsuit in two days against a major crypto exchange.  Angeline Ong | Presenter, Analyst and Content Editor, London | Publication date: Wednesday 07 June 2023  IGTV’s Angeline Ong takes a look at the differences between the SEC’s crackdown on Binance and Coinbase, and why this could be a gamechanger for the crypto industry. (Video Transcript) SEC cracks down on cryptos The crypto crackdown is escalating as the SEC has issued a lawsuit against Coinbase, the second in two days against a major crypto exchange. Now on Monday, the SEC targeted Binance, the world's largest cryptocurrency exchange. The two cases are of a different nature though with the SEC accusing Binance and its CEO, Chang Ping Tao of operating a "web of deception", while with Coinbase, the regulator considers it is operating illegally because it failed to register as an exchange. Now, if successful, these lawsuits could trigger a major change in the crypto world, asserting the SEC's jurisdiction over it. So far, the industry's argument is that tokens do not constitute securities and should not be regulated by the SEC. Coinbase share price chart Just checking in on Coinbase, which is on all-session stock on IG. It fell almost 10% in the previous session.
    • Spotify Inc., Elliott Wave Technical Analysis Spotify Inc., (SPOT:NASDAQ): Daily Chart, 7 June 23, SPOT Stock Market Analysis: We have witness an outstanding up move in Spotify as we rallied over 100% from the bottom at around 70$. It looks like we are looking for a potential top soon as we seem to be having different reasons to believe so.   SPOT Elliott Wave Count: Wave (v) of {v}. SPOT Technical Indicators: Above all averages. SPOT Trading Strategy: Looking for a down move to begin the correction soon.   TradingLounge Analyst: Alessio Barretta Source : Tradinglounge.com get trial here!   Spotify Inc., SPOT: 4-hour Chart, 7 June 23 Spotify Inc., Elliott Wave Technical Analysis SPOT Stock Market Analysis: As you can see we are looking at a potential ending diagonal in wave {v} as we encounter resistance which is visible on the daily chart and I highlighted the area in yellow. We have RSI bearish divergence suggesting we could be due a pullback.   SPOT Elliott Wave count:  Wave (v) of {v}. SPOT Technical Indicators: Above all averages. SPOT Trading Strategy: Looking for a sudden drop to confirm the end of the uptrend. 
    • Stocks in Asia managed to move higher overall, though weakness in Japan was the outlier. A poor performance from China's trade data raised hopes that some form of stimulus might eventually come to pass in the world's second-largest economy, as the slowdown intensifies. Markets remain relatively quiet overall, as the focus shifts to next week's clutch of central bank meetings. Yesterday's more hawkish RBA may give the Bank of Canada cover to raise rates once again, defying general expectations of a pause.   
  • Create New...