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Pound rallies on BoE rate hike bets

currency-newsPound rallies on BoE rate hike bets
The pound rallied on Monday, underpinned by growing bets that the Bank of England (BoE) will accelerate its current tightening cycle.

Sterling is off to a mixed start so far this morning, with GBP/EUR sliding to €1.1739 and GBP/USD climbing to $1.1995. GBP/CAD is flat at C$1.5524, while GBP/AUD and GBP/NZD retreat to AU$1.7454 and NZ$1.9321, respectively.

Looking ahead, will the release of a mixed jobs report limit the pound’s upside potential today?

What’s been happening?

The pound got off to a flying start this week, amid expectations the BoE will accelerate the pace of its monetary tightening at its next policy meeting.

These rate hike bets were underpinned by comments from BoE policymaker Michael Saunders, in which he suggested that ‘the tightening cycle may still have some way to go’ and that there is a chance that interest rates could reach 2% next year.

The US dollar, meanwhile, was met by some notable selling pressure yesterday as USD investors continue to scale back their expectations for a 100bps interest rate hike next week.

Adding to the pressure on the ‘greenback’ was also a prevailing risk-off mood, which sapped demand for safe-haven assets.

This pullback in the US dollar helped to buoy the euro on Monday thanks to the negative correlation between the pairing.

What’s coming up?

Kicking off today’s session was the publication of the UK’s jobs report.

While the latest data revealed unemployment held at 3.8% in May, wage growth came in below expectations, with the gap between inflation and real pay widening to a record high of 2.8%. This could exacerbate concerns over the UK’s cost of living crisis and weaken the pound today.

Also in focus for GBP investors today will be a speech by BoE Governor Andrew Bailey later this afternoon. If Bailey echoes the hawkish sentiment of Saunder’s recent remarks, then the pound could strengthen.

In focus for EUR investors will be the Eurozone's latest inflation release. If June’s finalised figures are revised higher it could bolster expectations for the European Central Bank’s (ECB) impending interest rate decision.

Meanwhile, we may see a speech by Federal Reserve policymaker Lael Brainard influence USD movement today. Will a hawkish outlook boost the US dollar?
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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