The Pound has lost its overnight gains today following the latest Bank of England interest rate meeting.
As anticipated, the BoE raised interest rates for the third time in four months (by 0.25%) which takes the rate back to its pre-pandemic level (0.75% - March 2020). The decision comes as inflation continues to rise with the Bank now expecting inflation to hit around 8% in the second quarter. The invasion of Ukraine is only likely to exacerbate the issue with global supply chain disruptions and further increases in energy prices.
Immediately after the announcement, the Pound came under increased selling pressure due to the cautious tone in some comments from the policymakers as to the path on future hikes and because one member voted against the increase. Generally, this wasn’t expected, and traders have consequently pulled back on their rate hike expectations which has reduced the appeal of Sterling.
In other news, and as expected, the Federal Reserve raised interest rates for the first time since the pandemic struck the world (0.25% increase). This led to some Dollar weakness overnight and into this morning as some traders had been pricing in a more aggressive first hike (of 0.5%). The current crisis in Ukraine has led to some cautiousness amongst Fed policymakers.
As a result, GBP/USD fell 0.75% from opening day levels and GBP/EURO fell 0.7% from its opening level.
