The British pound has edged lower in the Tuesday session. GBP/USD is currently trading at 1.3625, down 0.28% on the day.
Will BoE press rate trigger?
There is plenty of anticipation ahead of the BoE policy meeting on Thursday. There is a palpable feeling of unpredictability in the air, as it is unclear whether the bank will raise rates or maintain the current rate of 0.10%. A hike would likely be limited to 15 basis points, but such a move would mark the first hike by a major central bank since the Covid pandemic hit in early 2019.
BoE Governor Andrew Bailey and two other MPC members have expressed the need to take action and contain surging inflation; two members have voiced strong opposition to the move and four members are yet to weigh in. Analysts are split on which way the vote will go, which means that we could see some volatility from the pound, whatever the outcome of the vote.
Adding to the uncertainty is that the BoE is still running its QE programme. One could make the argument that there is somewhat of a contradiction in policy by raising rates while QE is still in effect, but Bailey, who appears hell-bent on raising rates, has said that that the bank was prepared to raise rates before winding up QE. If the bank does move ahead with a rate hike, the markets may find this confusing and Bailey may need to explain the bank’s thinking.
The pound is also under pressure as the dispute with the EU continues over Brexit, in particular the thorny issue of Northern Ireland. The UK wants to renegotiate the trade rules of the Northern Ireland protocols and remove the jurisdiction of the European Court of Justice (ECJ). The Europeans are willing to make some allowance in the trade rules but insist on the ECJ retaining its role in the Ireland/Northern Ireland/UK relationship.
Ahead of the BoE, the Federal Reserve concludes its policy meeting on Wednesday, with the Fed widely expected to taper its bond purchase programme. Fed Chair Powell will likely remind the markets that tapering does mean that a rate hike is coming anytime soon, but for the markets, the guessing game will intensify as to when the Fed might hike rates.
GBP/USD Technical Analysis
- On the upside, there is support at 1.3793 and 1.3892
- GBP/USD is testing support at 1.3632. This is followed by support at 1.3570
