BoE rate hike speculation underpins the pound

  • BoE rate hike speculation underpins the pound

     

    The pound enjoyed some notable support through the first half of October, as GBP investors begin to price in the possibility of a Bank of England (BoE) rate hike by the end of the year.

    This has seen GBP/EUR rally from 1.16 to 1.18, whilst pushing EUR/GBP lower to 0.84.

    Meanwhile, GBP/USD has accelerated from 1.35 to 1.37, whilst EUR/USD has traded between 1.15 and 1.16.

     

     

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    What’s been happening? 

    The pound is off to a flying start in October, following signals from the BoE indicating it could accelerate its timetable for hiking interest rates, amidst concerns over inflationary pressures in the UK.

    Meanwhile, the policy divergence between the European Central Bank (ECB) and its peers has become a clear liability for the euro, resulting in EUR exchange rates striking multi-month lows.

    At the same time, trade in the US dollar has been mixed over the past couple of weeks, amidst fluctuating market risk appetite and an underwhelming US payroll release.

     

    What do you need to look out for? 

    Looking ahead, barring any major Brexit hiccups, the pound may continue to trend higher through the second half of October, due to BoE rate speculation

    The euro could face additional losses over the next couple of weeks as upcoming data looks likely to reaffirm fears that Eurozone economic activity is slowing.

    Meanwhile, any downside in the US dollar looks limited, as USD investors brace for a tapering announcement from the Federal Reserve next month.

     

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