Pound subdued following BoE’s 50bps rate hike

Philip McHugh September 23rd 2022 - 2 minute read

Trade in the pound was erratic on Thursday after the Bank of England (BoE) disappointed with a 50bps rate hike.

Sterling is struggling to find support at the start of today’s session, with GBP/EUR subdued at €1.1435 and GBP/USD sliding to $1.1219. GBP/CAD is muted at C$1.5151, while GBP/AUD and GBP/NZD hold steady at AU$1.6944 and NZ$1.9234, respectively.

Looking ahead, will some underwhelming Eurozone PMIs weaken the euro today?

What’s been happening?

The pound was pressured yesterday in the wake of the BoE’s latest interest rate decision.

The BoE opted for another 50bps hike this month, disappointing GBP investors who had been hoping for a more aggressive 75bps increase. Sterling sentiment was also knocked by the bank’s warning that the UK is already in a recession.

However, the pound’s losses weren’t as acute as some investors feared, as BoE policymakers signalled they are willing to be more ‘forceful’ with future interest rate hikes.

The US dollar, meanwhile, was met by notable selling pressure on Thursday as investors sought to book their profits, after USD exchange rates struck new multi-year highs on the back of Wednesday’s Federal Reserve rate hike.

This pullback in the ‘greenback’ offered some support to the euro during yesterday’s session, through the pairing’s strong negative correlation.

What’s coming up?

Turning to today’s session, the focus this morning will be on the latest PMIs from the UK and Eurozone.

First up will be the Eurozone releases, with the euro likely to face some headwinds if September’s preliminary figures report growth in the manufacturing and services sector continued to contract.

The UK’s PMIs are also expected to show a slowdown in private sector activity this month, but less so than the Eurozone, which may lend some modest support to the pound today.

Today will also see the publication of UK Chancellor Kwasi Kwarteng’s mini-budget. Will a positive response from GBP investors underpin Sterling sentiment?

This afternoon will then see the publication of the latest US PMIs, where another sizable contraction in the US service sector could infuse some volatility into the US dollar.

Written by
Philip McHugh

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