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Pound to soar on hawkish BoE rate hike?

currency-newsPound to soar on hawkish BoE rate hike?
The pound traded with modest gains on Wednesday, in anticipation of an expected rate hike from the Bank of England (BoE) later today.

Sterling is largely muted so far this morning, with GBP/EUR flat at €1.1999 and GBP/USD subdued at $1.3558. GBP/CAD is rangebound at C$1.7212, while GBP/AUD and GBP/NZD hold steady at AU$1.9026 and NZ$2.0459, respectively.

Looking ahead, will a rate hike coupled with some hawkish forward guidance from the BoE help to turbocharge GBP exchange rates today?

What’s been happening?

The pound firmed through yesterday’s trading session, with the currency benefitting from expectations for an impending interest rate hike from the Bank of England.

The euro also ticked higher on Wednesday after the Eurozone reported a record rise in inflation at the start of 2022.

January’s figures were seen as conflicting with the European Central Bank’s (ECB) stance that the recent spike in inflation is ‘transitory’ and even saw some bullish EUR investors bet on a possible rate hike from the ECB before the end of the year.

The US dollar, meanwhile, was met by some notable resistance yesterday, with a drop in US treasury yields initially applying pressure, before a dramatic contraction in US employment growth -according to January’s ADP employment figures- reinforced the downside in the ‘greenback’.

What’s coming up?

Looking ahead its set to be a busy session today, with the BoE and ECB both set to deliver their first interest rate decisions of 2022.

The BoE is widely expected to announce it will be raising interest rates today. But with the hike largely priced in by markets the focus will instead be on the bank’s forward guidance.

Expect the pound to jump if the BoE signals it will continue to aggressively hike interest rates through 2022.

The ECB on the other hand, is expected to leave its monetary policy unchanged. If the bank continues to play down the chances of a rate hike before 2023 then the euro may fall.

Closing out the session will be the publication of the latest ISM non-manufacturing PMI, with the US dollar potentially facing some headwinds if US service sector activity is shown to have slowed last month.
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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