British pound steady ahead of BoE rate decision
|-
BoE expected to raise rates at Wednesday’s meeting.
-
Powell signals two more rate hikes this year.
The British pound is calm on Thursday. In the European session, GBP/USD is trading at 1.2786, up 0.15%.
It has been a quiet week for the British pound, although I expect to see more movement after the Bank of England announces its rate decision later today.
Will BoE deliver 50-bp hike?
It would be an understatement to say that BoE hasn’t gotten the job down on the inflation front. Wednesday’s inflation release was a painful reminder that the BoE is far away from its 2% target, and the government’s goal of reducing inflation to 5% by year-end would be a significant achievement.
The May UK inflation report was hugely disappointing for BoE policy makers. Headline inflation remained stuck at 8.7% y/y, and even worse, core inflation rose to 7.1%, up from 6.8% in April, the highest level since 1992. On a monthly basis, the core rate fell from 1.3% to 0.8%, but that still translates into an annualized rate of 10%. Inflation seems to be entrenched, despite the BoE’s tightening, which likely means the current rate-tightening cycle will be ‘higher and longer’ than the BoE had anticipated.
The BoE has raised rates over 12 straight meetings, yet little progress has been made on the inflation front. That has raised expectations that the central bank will have to apply tougher medicine in the form of oversize rate hikes, with a 0.50% increase a strong possibility at today’s meeting. If the BoE delivers a 0.50% hike rather than the BoE’s standard 0.25%, the pound should gain ground.
Powell stays hawkish on inflation
Fed Chair Powell told a House Committee on Wednesday that inflation pressures remained high and getting it back to 2% “has a long way to go”. Powell was clear about the Fed’s rate plans, stating “it was a pretty good guess” that the Fed would hike twice more this year. There was nothing really new in Powell’s testimony and market pricing of a rate hike in July remains steady and is currently at 74%, according to the CME’s FedWatch.
GBP/USD technical
-
1.2719 and 1.2645 are providing support.
-
There is resistance at 1.2848 and 1.2950.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.