GBP/USD climbs to four-week high on BoE rate hike speculation

The pound enjoyed notable support on Thursday, in response to rising bets for additional rate hikes from the Bank of England (BoE) in 2022.

Sterling is mostly rangebound so far this morning, with GBP/EUR stable at €1.1985 and GBP/USD steady at $1.3626. GBP/CAD is rangebound at C$1.7278, while GBP/AUD and GBP/NZD have retreated to AU$1.8877 and NZ$2.0261, respectively.

Will a solid rebound in UK retail sales growth last month help the pound maintain its bullish trajectory today?

What’s been happening?

The pound struck higher again on Thursday, with the currency catching bids amidst increased speculation the Bank of England will continue to raise interest rates aggressively this year.

This comes on the back of another hotter-than-expected UK inflation reading on Wednesday.

However, tempering this upside in Sterling appeared to be fresh concerns over Brexit, after a report from the British Chamber of Commerce (BCC) suggested most UK firms believe the current UK-EU trade deal is bad for business.

Meanwhile the euro was left on the defensive yesterday as headlines suggested an escalation of violence in Eastern Ukraine, which US President Joe Biden claimed may be a ‘false flag operation’ from Russia as a pretext for an invasion.

At the same time, the US dollar remained offered through yesterday’s European session as reduced expectations for a half-percentage rate hike from the Federal Reserve next month, offset risk-off flows.

What’s coming up?

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

January’s release reported sales growth rebounded by 1.9% following a 3.7% contraction in December, beating forecasts for a more modest 1% jump.

This could help underpin the appeal of the pound today as a strong sales reading may help to ease concerns that the UK’s cost-of-living crisis is suppressing consumer spending.

Meanwhile the euro may continue to struggle to attract support amidst ongoing concerns over the Ukraine crisis. Any provocative moves by Russia could send EUR exchange rates sharply lower.

On the other hand, the US dollar is poised to strengthen if market sentiment sours. Any upside in the ‘greenback’ could also be reinforced by a series of speeches by Fed policymakers, should they strike a broadly hawkish tone.