Pound rises on rate expectations

The British pound has posted considerable gains in the Tuesday session. GBP/USD is currently trading at 1.3805, up 0.57% on the day. Earlier in the day, the pound climbed to 1.3838, its highest level since September 16th.

Rate fever on the rise

The BoE has been sending a steady diet of hawkish messages to the markets about rate policy, and the markets have responded in kind. The markets have priced in a 90% likelihood that the BoE will hike rates by 0.25% at the next policy meeting on November 4th. Over the weekend, BoE Governor Andrew Bailey gave his strongest hint yet that the bank was poised to raise rates, saying that the bank “will have to act” in order to contain surging inflation. Bailey stuck to his script that inflation was temporary but acknowledged that the recent rise in energy prices meant that the rise in inflation would be larger and last longer than the bank had anticipated.

With the BoE projecting that inflation will climb over 4% this year, more than twice its target, one would think that a rate hike would be practically a given. This is not the case, however, as some MPC members have voiced opposition to a hike at this time. MPC member Silvana Tenreyro said last week that a rate hike would be “self-defeating” since it was unclear how long the rise in inflation would last. Other MPC members have noted that a rate hike could stifle the recovery and hurt the BoE’s credibility if the central bank made a U-turn on rates in a few months from now.

Still, with Bailey and most MPC members on board, a rate hike appears to be a done deal, with rate hikes of 0.25% likely in November and February.

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GBP/USD Technical Analysis

  • The pair is pressing on resistance at 1.3822. This is followed by the round number of 1.3900
  • There is support at 1.3618. Below, there is support at 1.3492

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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