GBP/USD Edges Higher Ahead of Bank of England Decision

GBP/USD Edges Higher Ahead of Bank of England Decision

 
GBP/USD
-0.02%

The British pound has edged upwards and is trading at 1.2296 in the European session, up 0.25%. Earlier, GBP/USD climbed as high as 1.2343, its highest level since February 2.

BoE expected to deliver 25 bp hike

The Bank of England is in the spotlight today, but like the Fed meeting, there isn’t any drama surrounding the decision. It’s very likely that the central bank will raise rates by 25 basis points, which would bring the cash rate to 4.25%. Just a few days ago, the markets were split 50/50 on whether the BoE would raise rates by 25 bp or leave rates unchanged due to the bank crisis.

The pause option evaporated after a disappointing inflation report which saw the headline and core rates head higher, and the markets have priced in another rate hike. What will be of interest to investors and what could move the pound today is the language that accompanies the decision. The Fed and ECB have reacted to the turmoil in the markets by avoiding forward guidance and emphasizing that rate decisions will be data-dependent. I would expect the BoE to take a similar approach at today’s meeting.

The BoE has been aggressive, raising interest rates 10 straight times. Despite this, inflation is still in double digits and no peak is in sight. Given the weak economy, the central bank would love to pause, but inflation will have to cooperate and move lower before the BoE can take its foot off the rate pedal.

As expected, the Federal Reserve raised rates by 25 basis points, bringing the cash rate to 4.75%. The message from the Fed was more dovish than expected, which has given the pound a slight boost. The rate statement omitted “ongoing increases” being needed, replacing it with “some additional” rises.

The change reflected concern about the bank crisis, as the Fed keeps an eye on the economic fallout from the collapse of four US banks in a matter of days. The markets are expecting one more rate hike, followed by a pause and rate cuts later in the year.

GBP/USD Technical

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