British pound rising steadily as UK inflation reaches new high
The British pound has been rising recently, in particular against the euro, as investors priced in expectations of an unusually large 50 bp rate hike by the Bank of England. There has been mounting pressure from political quarters and the press regarding the scale of the rate increase, with many considering that it will punish businesses and families, while having a limited impact in terms of controlling escalating prices. However, with the UK’s inflation at the highest level in four decades, and predictions that it will climb even higher, the BoE will probably deliver the half-percentage point hike it has been telegraphing – the highest increase in borrowing costs since 1995. With a 50 basis points hike already priced-in, the impact of today’s announcement on sterling is likely to be minimal. However, a surprise lower increase would surely generate pound weakness.
Ricardo Evangelista – Senior Analyst, ActivTrades
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