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Monthly Wrap – GBP – Pound flip-flops amid UK political uncertainty and BoE rate hike

Philip McHugh February 21st 2022 - 2 minute read

By Philip McHugh on February 21, 2022

Key takeaways:

  • Pound rocked by political jitters and cost-of-living concerns.
  • BoE rate hike helps to underpin Sterling.
  • GBP Monthly lows: €1.18, $1.33, AU$1.87, NZ$2.00, C$1.69
  • GBP Monthly highs: €1.20, $1.36, AU$1.91, NZ$2.05, C$1.72

The pound traded in a wide range through the past month as the support derived from an interest rate hike from the Bank of England (BoE) was offset by UK political uncertainty and concerns over the squeeze on household budgets.

This political uncertainty stemmed from the furore surrounding Boris Johnson’s involvement in a number of lockdown breaching parties at Downing Street.

GBP investors fear the PM could face a vote of no-confidence as the initial findings of the Sue Gray inquiry into the ‘partygate’ scandal reported a ‘failure of leadership’ at No 10, while the Met also announced it was launching a formal investigation into the lockdown breaches.

Sterling sentiment was also negatively impacted by growing concerns over an impending cost-of-living crisis in the UK as inflation soared to a new 30-year high, while the energy price cap was raised by a worrying 54%.

Analysts warned spiralling household costs could hamper economic growth in 2022 due to suppressed consumer spending.

On the other hand the pound has drawn some support from the BoE’s decision to hike interest rates following its first policy meeting of the year, particularly after it emerged that four of the nine policymakers voted for a half-percentage increase.

Looking ahead, the immediate focus for GBP investors looks to be Boris Johnson’s premiership, the future of which looks increasingly uncertain. Should the outcome of the police investigation or the full release of the Sue Gray report renew calls for his resignation, Sterling could weaken.

The UK’s cost-of-living crisis will no doubt continue to draw attention from GBP investors and could act as a key headwind for the pound in the coming weeks.

On the other hand, any downside in GBP exchange rates could be tempered by BoE rate hike speculation, with the pound likely to be underpinned by expectations the bank could raise interest rates again in March.

Written by
Philip McHugh

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