The GBPUSD currency pair was up over 60 pips as the Sterling pound rallied against the US dollar, driven by the Bank of England’s 0.25% rate hike. The BoE had no choice but to hike rates following the release of upbeat UK inflation yesterday, showing that inflation rose to 10.4% beating analysts' expectations of a drop to 9.9%.
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Furthermore, the Bank of England reassured investors that the UK banking system was robust with adequate capital and liquidity. This is why they remained resilient even as banks in the EU and the United States faced a confidence crisis that threatened the global banking system.
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Investors cheered the Decision Maker Panel survey of businesses released by the BoE, which indicates that firms see the inflation rate peaking at 5.6% in 2023, a decline from the 6.2% figure released in February. However, inflation in the hospitality sector remains pretty high.
The BoE warned it would implement further rate hikes if future price increases require the central bank to step in and hike rates to control rampant inflation. However, no rate hikes are scheduled as the BoE continues monitoring incoming data before its next monetary policy meeting in May.
The weaker US dollar also fueled the GBPUSD’s rally following yesterday’s dovish Fed rate hike. The US dollar has weakened significantly in recent weeks, and many expect the greenback to remain weak over the short term until fears about the US banking system are resolved.
Meanwhile, the Fed did not promise any further rate hikes but promised to vigilantly monitor the economy and the US banking system to ensure that there were no systemic risks that could force more banks to collapse.
Unlike the United States, the UK banking system is more straightforward and is not prone to the risk-taking seen in US banks, given the country’s position as the sole issuer of the US dollar, which acts as the world’s reserve currency.
Investors are betting on the strength of the UK banking system and the high inflation rate, which could force the BoE to hike rates in May.
*This is not investment advice.
The GBPUSD price chart.
The GBPUSD currency pair was trading up 60.5 pips (0.49%) as the British pound rallied against the US dollar.
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