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Pound jumps as BoE surprises with first rate hike in three years

currency-newsPound jumps as BoE surprises with first rate hike in three years
The pound enjoyed strong support on Thursday, following the Bank of England’s (BoE) shock decision to raise interest rates.

Sterling appears mostly muted so far this morning, with GBP/EUR flat at €1.1761 and GBP/USD muted at $1.3316. GBP/CAD and GBP/AUD are rangebound at C$1.7029 and AU$1.8587, respectively, while GBP/NZD climbs to NZ$1.9661.

Looking ahead, will a strong UK retail sales print help the pound to sustain its BoE-driven gains through to the weekend?


What’s been happening?

The pound rallied against the majority of its peers yesterday after the Bank of England gave GBP investors an early Christmas surprise by hiking interest rates.

The BoE raised interest rates from a record low 0.1% to 0.25% following its December policy meeting, with policymakers citing concerns over the sharp rise in domestic inflation as tipping the Monetary Policy Committee in favour of a hike.

Meanwhile, the European Central Bank (ECB) also concluded its final policy meeting of the year on Thursday, with the ECB opting to leave rates on hold as expected.

Despite the ECB also striking a broadly dovish tone as it confirmed plans to temporarily increase its bond purchases to offset the end of its pandemic-era stimulus package in March, the euro was able to find modest support.

This may be down to the single currency’s negative correlation with the US dollar as the latter remained on the defensive yesterday following the Federal Reserve’s rate decision on Wednesday, with additional pressure coming from some disappointing US PMI releases.


What’s coming up?

Kicking off today’s session was the publication of the UK’s latest retail sales figures.

November’s release reported a stronger-than-expected expansion of sales growth while also revising up October’s figures, something which may help to underpin the pound today.

For EUR investors the focus this morning will be on the latest Ifo business climate indicator from Germany. If December’s index reports another deterioration in business morale, then the euro could stumble.

Finally, in the absence of any notable US economic data, the direction of the US dollar is likely to be driven primarily by market sentiment, potentially buoying the safe-haven ‘greenback’ if the mood is weighed down by Omicron concerns.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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