How Much More Can the GBP Rally ?
How Will The Markets React?
Interest rate announcements are always important for the foreign exchange market. With the Bank of England, this upcoming rate decision will be market moving regardless of whether they decide to raise interest rates or not. After having raised rates in May and then leaving them unchanged in June, the BoE is expected to lift rates from 5.50 to 5.75 percent tomorrow. Of the 60 economists surveyed by Bloomberg, 52 or 87 percent of them are calling for an interest rate hike. This almost unanimous view puts the “surprise” element of the event risk to the downside. Therefore if the Bank of England leaves rates unchanged or raises rates and then issues some very neutral language in their statement, we could see a far larger move in the GBP/USD than if they do exactly what the futures curve is pricing in, which is to raises rates and remain hawkish. According to futures traders, the BoE could bring rates up to 6 percent by the end of the year. The recent movements in the currency, bond and stock markets indicate that British pound and Gilt traders are expecting higher rates while stock traders are not.
If the Bank of England Raises Rates, How Much More Can the GBP Rally?