LONDON: The British pound gained on Thursday as investors prepared for an expected interest rate rise from the Bank of England and waited for policymakers to signal how fast they will need to increase over the rest of the year to tame inflation.
The Ukraine war and spike in commodity prices has made the BoE’s job harder as it confronts an inflation rate already running at more than double its 2% target and as economic growth is likely to slow given the squeeze on consumers’ living standards and the impact of the conflict.
By 0910 GMT sterling was up 0.3% at $1.3178, and 0.2% higher versus the euro at 83.83 pence. The US Federal Reserve on Wednesday gave a hawkish signal as it raised rates for the first time since 2018 and flagged the need for a 0.25% rate rise at every one of its remaining meetings this year.
The BoE has already hiked rates twice since December and money markets fully price in another 0.25% rise being announced at 1200 GMT by the BoE’s Monetary Policy Committee.
“The UK rate market also appears to be fully pricing in the probability of larger 50bps (basis points) hike being delivered at one of the upcoming MP meetings before the summer with 105bps priced by the June. It sets a high hurdle for the BoE to deliver a hawkish policy surprise today,” said Lee Hard man, currency analyst at MUG.
“Market participants will then scrutinise closely how the BoE is weighing up the likely impact from the Ukraine conflict, which will both worsen the near-term inflation outlook and increase the risk that the UK economy will slow even more notably than the BoE had already been expecting from next year.”
The pound fell in recent weeks as investors, worried about inflation, tightening monetary policy globally and the war in Ukraine, sold out of riskier currencies and bought the dollar.
Against the euro, sterling performed far better, as the single currency was damaged by concerns the war in Europe’s east would hurt the regional economy.
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