GBP Forex Market Boosted by Rate Hike
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- Pound jumps up as BOE raises rates
- Euro stable while ECB news is awaited
- Wall Street lower after disappointing results from major tech companies
The British pound booked a strong gain early Thursday, as it benefited from the Bank of England’s announcement to raise rates. The currency broke through the 1.36 barrier after the announcement against the dollar. The euro has been rising all week but remained stable, as news from the ECB and President Christine Lagarde is expected soon. Meanwhile, futures on Wall Street fell, as markets are still recovering from the steep drops in equity prices yesterday. Those drops were mainly caused by the rebranded Facebook company Meta Platforms (META ) and PayPal (PYPL ), both of which fell in trading yesterday.
BOE rate hike brings the pound to life
The pound was lively early this morning, as the Bank of England announced its decision to raise rates by 25 basis points to 0.50%. In an apparently dramatic vote, the Monetary Policy Committee in the UK decided to approve the rate hike, which was widely expected. The currency responded with a rise above 1.36 against the dollar before stabilising.
Policymakers also said they were committing to several other steps to remove support for the economy by the end of 2022 and the start of 2023. This includes reducing corporate bond holdings through non‑reinvestment, with the aim of having no holdings by early 2023. The meeting also showed that the central bank expects inflation to peak at more than 5% in the coming year before falling significantly.
Focus shifts to ECB tone
The ECB also has to make its own announcements today. It has already been established by those in the FX trading industry that policymakers in Europe will not announce further policy changes. They are expected to continue winding down their own bond‑buying programme (PEPP), as announced in December. Apart from that, the main focus will be on the tone of the ECB President when she speaks about inflation.
Currency broker‑dealers expect that any hawkish perception by Christine Lagarde on the subject and the suggestion of possible rate hikes before year‑end could push the euro, which has been strong all week, even higher. Conversely, a dovish view, if she believes inflation is near a peak, could weaken the common currency, given the divergence between US and EU policy in the light.
Wall Street prepares for a tough day
Futures on Wall Street pointed down on Thursday morning into negative territory. This happens despite a strong rebound to start the week. Gains were booked for consecutive days across the board, as traders began to reclaim some oversold names.
This move was hit yesterday when both PayPal and Meta Platforms, formerly Facebook, reported disappointing earnings calls, leading to a drop of more than 20% in both names. Those losses appear to have spread to the rest of the market, which is making preparations for the weekend.
