The British pound has put together an impressive rally this week, with gains of 1.11%. The currency has taken a pause ahead of a key BoE policy meeting later today.
BoE expected to hike rates
The Bank of England is widely expected to raise rates by 0.25% at today’s meeting. This would bring the Official Bank Rate to 0.50% and would be the first back-to-back rate hike since 2004. The markets were caught off guard by the December hike, as the Omicron wave was spreading across the UK. The BoE opted to raise rates because of concerns over inflationary pressures, which have continued to accelerate and show no signs of easing. The economy managed to withstand Omicron fairly well, and the central bank is confident that the economy can handle further tightening at today’s meeting.
With the likelihood of a quarter-point hike hovering around 90%, investors will be most interested in the guidance that accompanies today’s move – if the BoE sounds hawkish and hints at additional rates, this should translate into gains for the pound. A unanimous MPC vote at today’s meeting would be bullish for the pound, as it would indicate that central bank policy makers are on the same page with regard to monetary policy.
In the US, the ADP employment report for January was a disaster, with job losses of 301 thousand. This was the sharpest decline since April 2020, when the Covid pandemic started. The reaction of the markets was muted since the data was heavily impacted by the Omicron wave. Expectations are quite low for the nonfarm payroll report on Friday, with a consensus of 150 thousand. The NFP report is usually the highlight of the week, but investors are more focused on interest rate hikes and the US inflation report next week.
GBP/USD Technical Analysis
- 1.3522 has switched to a support role. It is a weak line. Below, there is support at 1.3314.
- There is resistance at 1.3648 and 1.3730
