- Pound (GBP) looks to the BoE rate decision
- 50-basis point hike is due
- Euro (EUR) awaits the ECB decision
- Could the ECB deliver a hawkish surprise?
The Pound Euro (GBP/EUR) exchange rate is rising, adding to gains from the previous session. The pair rose +0.13% yesterday, settling at €1.1632 after trading in a range between €1.1600 – €1.1661. At 06:25 UTC, GBP/EUR trades + 0.03% at €1.1636.
The pound rose modestly in the previous session after UK inflation fell from a 41-year high change 10.7% year on year in November, down from 11.1% in October and below economists’ forecast 10.9% in November. Falling fuel prices helped cool price pressures, although high food and energy prices continue to squeeze household incomes and businesses.
The data comes ahead of the Bank of England monetary policy decision which will be announced later today. The central bank is widely expected to hike interest rates by 50 basis points as it continues to fight against high inflation and the country tips into recession. This means that the 75-basis point hike in the previous meeting was a one-off.
Investors will be watching carefully to see what the Bank of England makes of the double-digit inflation and whether inflation has peaked. In the last meeting, the Bank of England also suggested that the market was overpricing the terminal rate. Is this still going to be the case?
The meeting also comes at a time when the UK economy is dealing with a series of strikes across the nation, as rail workers, nurses, and border force staff threaten to walk out over pay and conditions.
In addition to the Bank of England monetary policy announcement, the ECB will deliver its interest rate decision. Expectations are for a rate hike to 50 basis points taking the benchmark interest rate to 2.5% after two straight 75 basis point points.
Policymakers have expressed concerns even the like time involved between hiking interest rates and the impact on the rail economy, suggesting that slowing the pace down and wait to see the impact could be appropriate. However, there is still a risk of a hawkish prize some ECB officials have continued to express concern over double digit inflation, which is still five times the ECB’s target rate.
