Sterling continued to gain momentum on Wednesday as investors increased their bets of a Bank of England interest rate hike this afternoon. Following December’s 30-year high inflation print, the BoE are “facing pressure to curb inflation… and signal further unwinding of its pandemic stimulus, including a gradual reversal of its huge bond-buying plan”. In a poll by Reuters, “Twenty-nine of 45 economists last month said the BoE would raise Bank Rate to 0.5% from 0.25% at its February meeting, hot on the heels of December's rate hike, the first by a major central bank since the pandemic”. If the BoE do decide to raise rates today it would “mark the first back-to-back borrowing cost increases by the BoE since 2004, reflecting an urgent need to show it is on top of an inflationary surge”.
The European Central bank also has its latest policy meeting today. In contrast, the ECB is “all but certain to keep policy unchanged… but could acknowledge that inflation could stay high for longer than it had projected, a signal that some may take as a hint at a faster exit from stimulus”. Inflation in the Eurozone has consistently exceeded the ECB’s forecast and currently sits 3% over the ECB’s target of 2%. However, Christine Lagarde and other policy makers argue “that inflation will soon abate without its intervention and that long-term price pressures are actually too weak, meaning support is still needed to underpin inflation which undershot the ECB's 2% target for much of the last decade”.
GBPUSD edged slightly higher on Wednesday as Sterling advanced. Cable opened at 1.3534 and closed at 1.3561.
GBPEUR also made gains in the Wednesday session. The pair started at 1.1988 and closed at 1.2003.
EURUSD traded relatively flat on the day and saw little price action. The pair opened at 1.1289 and closed at 1.1298.
