Monthly Wrap: GBP – BoE miscommunication rocks the pound

Philip McHugh November 25th 2021 - 2 minute read

By Philip McHugh on November 25, 2021

Key takeaways:

  • Pound infused with volatility after BoE leaves rates on hold in November.
  • Is a December rate hike still on the cards?
  • GBP Monthly lows: €1.16, $1.33, AU$1.81, NZ$1.88, CA$1.67
  • GBP Monthly highs: €1.19, $1.38, AU$1.86, NZ$1.93, CA$1.70

The pound traded in a wide range over the past month, mostly as a result of the Bank of England’s decision not to raise interest rates following its November policy meeting.

Ahead of the decision, there has been significant speculation that the BoE could hike interest rates this month, fueled in large part by a series of hawkish comments from policymakers, including BoE Governor Andrew Bailey.

This triggered a sharp plunge in GBP exchange rates after the BoE announced it would instead wait for more clarity on how the UK’s labour market is faring before hiking rates, with many GBP investors frustrated by the BoE’s apparent miscommunication.

Adding to the pound’s woes through the first part of November were elevated Brexit concerns, as the UK government’s threat to trigger Article 16 of the Northern Ireland protocol stoked fears of a UK-EU trade war.

Sterling then mounted a convincing recovery in mid-November, with the GBP/EUR exchange rate even climbing to a 21-month high following the publication of a stronger-than-expected post-furlough jobs report as well as a bumper inflation print. As the two releases reignited speculation the BoE could hike interest rates before the end of 2021.

These gains were then trimmed towards the end of the month as the pound fell victim to some profit taking.

Looking ahead, a lot will be riding on the BoE’s December policy meeting.

While GBP investors are a more wary about being too aggressive with their rate hike bets after being wrong footed by the BoE in November, there is still plenty of room for the pound to fall should the BoE decide to push back its next interest rate hike into 2022.

Elsewhere we could see GBP investors keeping a close eye on UK Covid statistics, amidst concerns Europe’s recent resurgence could still disrupt the status quo in the UK.

Written by
Philip McHugh

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