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Pound buoyed by BoE rate hike optimism

Philip McHugh July 26th 2022 - 2 minute read

The pound ticked higher on Monday amid speculation over the Bank of England’s (BoE) next interest rate hike.

Meanwhile, Sterling opens today’s session on the back foot, with GBP/EUR muted at €1.1781 and GBP/USD flat at $1.2056. GBP/CAD and GBP/AUD have slipped to C$1.5453 and AU$1.7296, respectively, while GBP/NZD holds steady at NZ$1.9244.

Looking ahead, will a negative retail sales reading apply pressure to the pound this morning?

What’s been happening?

The pound got off to a solid start this week, with Sterling being bolstered by fresh speculation the Bank of England will deliver a 50bps interest rate hike next week.

This uptick in GBP exchange rates was supported by the Confederation of British Industry’s (CBI) latest business optimism index as it reported a surprise improvement in manufacturing sentiment in the third quarter.

This helped to offset fresh Brexit jitters that resulted from the massive delays seen at Dover port over the weekend.

The euro, meanwhile, trended lower on Monday following the publication of Germany’s IFO business climate index, as a larger-than-expected slump in morale stoked fears that the Eurozone’s largest economy is heading toward a recession.

At the same time, the US dollar was dented as USD investors continued to reprice their expectations for future Federal Reserve rate hikes, with a prevailing risk-on mood further sapping demand for the safe-haven currency.

What’s coming up?

The only economic data of note today will be the publication of the CBI’s latest distributive trade index.

July’s index is expected to report another slump in the UK’s retail sales balance as consumers continue to rein in their spending, potentially placing pressure on the pound this morning.

Across the Channel the upside potential of the euro may remain limited amid ongoing concerns over European energy security.  As Russia is set to cut gas supplies to the continent again later this week.

Meanwhile, USD investors are likely to be reluctant to make any aggressive bets ahead of the Fed’s interest rate decision on Wednesday.

Written by
Philip McHugh

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