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The Bank of England is scheduled to announce its interest rate decision on August 4.
UK’s central bank fired the starting gun on interest rate hikes in December 2021, hiking its benchmark rate to 0.25%, from a historic low of 0.1%. Since then, the BoE has raised rates at 5 consecutive meetings, taking the rate to 1.25%, to fend off soaring inflation.
So, what can we expect from the upcoming BoE meeting?
In mid-July, Bank of England chief Andrew Bailey indicated that policymakers were considering a more aggressive monetary tightening policy than the quarter percentage point increases it has adopted so far. The markets are widely expecting the central bank to hike rates by 50bps on August 4.
BoE governor Bailey had also announced plans to sell some of the central bank’s stock of bonds, totalling £875 billion. He had said that the sell-off programme could begin as early as September, when bonds worth between £50 billion and £100 billion could be sold in the first year. This would make the BoE the first major central bank to begin selling government bonds. Most major governments had purchased bonds during the pandemic to stimulate their economies.
GBP/USD Prospects
A higher-than-expected rate hike by the BoE would support the GBPUSD, which has been struggling since the beginning of the year. The forex pair continued its downtrend through most of July, even in the face of better-than-expected economic data from the UK. A strengthening US dollar (US dollar index is up ~11% year to date), backed by the Fed’s overly hawkish stance, has exerted great pressure on the GBP/USD. A hike of more than 50bps by the BoE could reverse this trend.
Are your trades set up for the BoE’s upcoming rate decision?
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