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Forex »The pound sterling soars with the rise in rates of the BOE

The Bank of England raises the benchmark interest rate from 0.10% to 0.25%

The British pound skyrockets in the forex market as traders evaluate further rate hikes from the Bank of England through 2022!

Today’s rate hike indicates that the tide has turned and BOE policymakers are now prioritizing addressing inflation as the biggest economic risk.

After a big aggressive turn from the Federal Reserve yesterday, the Bank of England went further in the fight against inflation by raising its benchmark interest rate from 0.10% to 0.25%, becoming the first central bank. important in increasing borrowing costs since the COVID pandemic. It turned the world economy upside down last year.

While many economists expected the central bank to postpone the decision until February, Bank of England Governor Andrew Bailey and his company determined that the inflation rate, which is expected to hit 6% in April, is three times the level. BOE’s target, it was a bigger threat. than the rapid spread of Omicron across the country. The move follows the call of the IMF, which made the highly unusual decision to explicitly encourage the BOE to avoid “inaction bias” at today’s meeting.

The Monetary Policy Committee voted 8-1 in favor of the rate hike, and only external member Silvana Tenreyro disagreed. Separately, the BOE left the size of its QE program target unchanged at £ 875bn and lowered its growth forecast for the first quarter of 2022 amid concerns about Omicron.

Of course, a 15bp interest rate adjustment won’t have a major impact on the economy per se, but it does indicate that the tide has turned and BOE lawmakers are now prioritizing fighting inflation as the biggest economic risk.

Looking ahead, markets still anticipate a roughly 60% chance of another rate hike at the next BOE meeting in February, with rates expected to exceed 1.00% by the end of 2022.

EUR / GBP technical analysis

Unsurprisingly, the British pound rose in the currency market following the unexpected change in monetary policy, and is now the strongest major currency of the day. While the European Central Bank’s own monetary policy meeting is taking place at press time (no interest rate change, but will slightly increase bond purchases in the second and third quarters of next year). , Traders are keeping a close eye on the EUR. / GBP pair.

As shown in the chart below, the EUR / GBP pair has dropped around 125 pips in the forex market since the stress test at the confluence of its previous highs, the 200-day EMA moving average and the channel. bearish around 0.8600 in the middle. from last week. In the future, the couple carries EUR / GBP appears to be gaining traction, with the possibility of the pair extending its established downtrend towards the 2021 low below 0.8380 as the holidays approach.

EUR / GBP daily chart

Source: TradingView, StoneX

By Matt Weller, CFA, CMT, Forex.com » Official site

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Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or solicitation to buy or sell currency or CFD contracts. Although the information contained in this document has been taken from sources considered reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may result from the fact that someone trusts such information.

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