Pound Sterling comes closer to 1.2800 as discussions about BoE’s bigger rate hike soars – Crypto News – Crypto News
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GBP/USD eyes fourth weekly loss amid UK's economic pessimism GBP/USD eyes fourth weekly loss amid UK's economic pessimism

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Pound Sterling comes closer to 1.2800 as discussions about BoE’s bigger rate hike soars – Crypto News

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  • Pound Sterling has stretched its recovery ahead of the Bank of England’s interest rate decision.
  • Core inflation in the United Kingdom is moving in the wrong direction despite restrictive monetary policy.
  • UK households are going to face purchasing power constraints due to 8.7% inflation vs. 6% earning rate.

The pound Sterling (GBP) has stretched its recovery firmly as fresh hot United Kingdom inflation data supports a bigger rate hike in the interest rate decision from the Bank of England (BoE), which will be announced at 11.00 GMT. The GBP/USD pair has recovered vertically as investors are worried that a surprisingly higher Consumer Price Index (CPI) could force BOE Policymakers to go extremely hawkish on interest rates.

United Kingdom’s inflation remained hotter than expected in May as labor market conditions have tightened further and food price inflation has not peaked yet. Meanwhile, UK’s core inflation has printed a fresh new high of 7.1%, which has tilted expectations of market participants in favor of a fat interest rate hike from the central bank.

Daily digest market movers: Pound Sterling reaches 1.2800

  • Pound Sterling witnessed a massive sell-off after UK’s May inflation data turned out to be more persistent.
  • UK inflation figures were surprisingly higher than expectations as monthly headline CPI for May expanded at a pace of 0.7%, matched April’s pace but remained higher than the estimated pace of 0.5%.
  • Annualized headline inflation remained steady at 8.7% while the market was anticipating a deceleration to 8.4%. While core UK CPI that excludes oil and food prices printed a fresh high of 7.1% versus expectations of steady performance.
  • UK households are going to face high pressure amid a wide deviation between 8.7% inflation and 6% earnings rate.
  • Hot inflation numbers seem uncomfortable for UK PM Rishi Sunak and BoE Governor Andrew Bailey as the former promised to halve inflation by year-end and investors believe that the latter is failing to do justice with his job of achieving price stability.
  • UK FM Jeremy Hunt is reluctant to cut taxes as it could propel already elevated inflationary pressures and would undermine the impact of hawkish monetary policy.
  • Investors are mixed about the interest rate policy as the latest inflation data has fueled chances of a fat interest rate hike while the other school of thought believes that a bulky rate hike would threaten the economic outlook.
  • A poll from Reuters shows that the BoE would raise interest rates by 25 bps to 4.75%. This will be the 13th time interest rate hike in a row, which would push rates to the highest since 2008.
  • Analysts at Rabobank expect another 25 bps hike that will lift the policy rate to 4.75%. This has been our forecast since October 2022. The upside risks to embedded inflation we flagged previously have materialised. We, therefore, add two more 25 bps hikes to our forecasts and now see rates reaching 5.25% this summer.
  • A pullback move in the US Dollar Index could be faded as Federal Reserve (Fed) policymakers delivered dovish commentary.
  • Atlanta Fed President Raphael Bostic cited that the central bank should not raise interest rates further or it would risk “needlessly” sapping the economy’s strength.
  • Chicago Fed Bank President Austan Goolsbee favored allowing current interest rates the required time to show their impact on the economy.
  • As per the CME Fedwatch tool, more than 70% chances are still in favor of a 25 bps interest rate hike in July to 5.25-5.50%.
  • Fed Chair Jerome Powell cited in his testimony to Congress that bringing down inflation to 2% has a long way to go.
  • Jerome Powell also confirmed that all policymakers have agreed that more rate hikes are required this year.

Technical Analysis: Pound Sterling shows perpendicular recovery

Pound Sterling has resumed its upside journey towards the round-level resistance of 1.2800. The corrective move in the Cable has found intermediate support near the 10-period daily Exponential Moving Average (EMA) at 1.2700. Broadly, the Pound Sterling is approaching north in a Rising Channel chart pattern in which each pullback is considered a buying opportunity by the market participants.

Bullish bias for the Cable would strengthen if it manages to climb above the fresh annual high around 1.2850. The bullish bias could be faded if Cable drops below the previous month’s high around 1.2669.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%) . The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance affect the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

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