Is the Door Still Open for a BoE Rate Hike Next Month?

The pound found its feet again at the end of last week’s session as markets jumped on comments made by a Bank of England policymaker, which appeared to suggest a rate hike could still be possible next month.

Sterling is showing signs of life this morning however, with GBP/EUR rising to €1.1419, GBP/USD climbing to US$1.4023. GBP/AUD and GBP/NZD have appreciated to holding at AU$1.8282 and NZ$1.9461 respectively, while GBP/CAD is up at C$1.7888.

The Eurozone will release its latest CPI figures this morning with the euro expected to move lower if private sector activity slowed in April as expected…

What’s been happening?

The pound initially plummeted on Friday, following comments from BoE Governor Mark Carney on Thursday evening in which he warned the bank could delay its next rate hike.

However Sterling was able to mount a recovery by the end of the day as hawkish remarks from Michael Saunders, a member of the BoE’s Monetary Policy Committee (MPC), indicated he still felt that a rate hike in May would be necessary.

The GBP/EUR exchange rate’s push higher was also aided by market caution ahead of the European Central Bank’s (ECB) latest policy meeting later this week.

Expectations that policymakers will vote to leave the bank’s monetary policy unchanged again this week led many investors to trim their positions on the euro.

However the GBP/USD exchange rate failed to replicate the shift in GBP/EUR on Friday as rising US treasury yields helped the US dollar to build on its momentum to close the session at a new two-week high against the pound.

What’s coming up?

A lack of economic data means it’s likely to be a slow start for the pound this week.

This will likely leave the focus on next month’s rate decision by the BoE, with the direction of Sterling likely to be driven by whether markets believe the doors are still open for the bank to raise interest rates.

The euro is likely to fall this morning with the publication of the Eurozone’s latest PMI figures.

Economists forecast that today’s data will show that private sector activity continued to slow this month, further denting hopes that the bloc will repeat 2017’s growth.

Meanwhile the US dollar may attempt to press higher this afternoon, following the release of the latest US housing figures, with today’s data expected to show existing home sales continued to rise in March.