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Will GBP/USD Rally on BoE Rate Hike?


Pound US Dollar (GBP/USD) Exchange Rate Firms as Investors Anticipate BoE Rate Decision

The Pound US Dollar (GBP/USD) exchange rate is firming this morning, ahead of today’s interest rate decision from the Bank of England (BoE).

At the time of writing, GBP/USD is trading at around US$1.2794, a rise of just under 0.2% from this morning’s opening rates.

Pound (GBP) to See Volatile Trade Post BoE?

Over today’s session, the Pound (GBP) could see volatile trade due to the Bank of England’s latest interest rate decision.

Until very recently, markets had firmly priced in a 25bps rate hike. However, due to yesterday’s shock jump in core inflation, markets are now split on whether or not the bank will pursue a 50bps hike.

Furthermore, up to 150bps of future tightening is now expected. If the BoE pursues a hawkish 50bps hike at this afternoon’s meeting, Sterling could climb against its peers.

However, if the BoE offers some pushback against these expectations, Sterling could struggle to gain ground and may even weaken.

Similarly, investors are cognizant of the impact further tightening may have on the UK economy. With the mortgage market in focus as rates continue to push higher, hawkish rhetoric could lead to a muted reaction from investors.

On Friday, the latest UK retail sales data is due to print. Economists forecast a decrease of 0.2% on a monthly basis, which could sap sentiment towards the Pound.

This is then followed by the latest private sector indexes. The current forecast is for a downtick in both the manufacturing and service sectors, which could weigh further on the Pound. However, as the service sector may remain in expansion territory, the losses could be minimised.

US Dollar (USD) to See Volatile Trade amid Loosening Labour Market?

The US Dollar (USD) could see some movement later today, following the release of the latest initial jobless claims data.

The previous reading increased significantly, and weighed heavily on the ‘Greenback’. Currently, economists forecast 260,000 claims for the week ending June 17th.

This could further reinforce the view that the US labour market has begun to cool on the back of the Federal Reserve’s recent tightening.

On Friday, the latest set of private sector indexes are due to print. While less impactful than the ISM readings, forecasts of a decline in the services sector may weigh on the ‘Greenback’.

Elsewhere, market sentiment is likely to drive sentiment towards the US Dollar. As a safe-haven currency, a souring market mood would likely bring safe-haven flows.

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