Sterling remains poised ahead of this afternoon’s ‘Super Thursday’ Bank of England interest rate meeting.
Markets are close to 50:50 on whether the BoE will hike rates later. Recent speeches from BoE policymakers – which highlighted concerns over stubbornly high inflation levels – had pushed expectations towards a November rate increase. However, traders have repositioned ahead of the event and the balance is tipped ever so slightly towards no hike this month.
Investors will be keeping a close eye on how the vote comes in. If they vote to hike but the vote is extremely tight, then any upside in the Pound should be fairly limited. If the vote is heavily swayed to a hike, then this could give Sterling more of a boost. Alternatively, if they decide to keep thing on hold, then the pound should cool (particularly if they do not sound overly alarmed by rising inflation). Even without a hike though, a heavily cautious tone over inflation from the Governor (Bailey) could help support the Pound, as it could mean a series of hikes over the next year or so.
In other news, last night’s Federal Reserve interest rate meeting was a relative non-event. As expected, they announced they would reduce their quantitative easing efforts by $15 billion per month and the Chairman (Powell) reiterated that they were not considering discussing any rate hikes until they had concluded their quantitative easing program.
As a result, the GBP/EUR is up half a cent from yesterday but down a cent from last week’s high. The GBP/USD is down over half a cent this morning and trades close to a 2-week low.
