BoE interest rate decision looms – will it help or hinder the pound?

GBP EUR Rallies After Bank of England Rise in Interest Rates

BoE interest rate decision looms – will it help or hinder the pound?

The Federal Reserve announced last night their latest decision to raise interest rates by 50-basis points. This move takes US interest rates to 4.5%, the highest level in 15 years.

50-basis points is the smallest hike since May after the Fed raised by 75-basis points at the previous four meetings. This decision was likely influenced by Tuesday’s CPI data which indicated inflation may have hit its ceiling. US CPI is at 7.1% vs expectations of 7.3% and down from the last reading of 7.7%.

The dollar saw gains against the pound and the euro immediately after the decision. However, these proved momentary with the euro and pound both trading within range of 6-month highs against the greenback.

Today could prove pivotal for sterling and euro exchange rates moving forward. The Bank of England will announce their latest interest rate decision at midday. The European Central Bank will follow them at 13:15. UK inflation remains elevated at 10.7%, however, down from the previous high last month of 11.1%.

Markets are largely expecting another 50-basis point hike from the BoE to signal they are committed to bringing inflation under control. A smaller hike and any negative commentary from the BoE could present downside risk for sterling. At recent meetings the banks commentary regarding the UK’s economic outlook has caused the pound to lose value.

For the last week GBPEUR has been range-bound in the 1.16s with the pound testing 1.17 at the peak. Today’s announcement could break the range in either direction.

The ECB are also expected to raise rates by 50-basis points which could lend support to the euro against its major counterparts. EURUSD is trading in the 1.06 range having shifted 4% in the last 3-weeks.

If you would like assistance managing your currency risk or any future international transfers, please reach out to me directly at [email protected]. Please reach out this morning if you require assistance ahead of the bank’s decision.