Mixed BOE Expectations
On the back of the Fed and ECB meetings last week, the BOE steps into the limelight this week.
Traders are widely expecting the bank to push ahead with a fresh rate hike this month. However, beyond that point, expectations are more mixed. Some players are looking for the bank to press ahead with further tightening, similar to the ECB while others are looking for the BOE to signal a coming pause, in line with the Fed.
CPI In Focus
The deal breaker is likely to be tomorrow’s UK CPI reading for last month. If inflation is seen falling sharply once again, this should encourage the view that the BOE might look to pause tightening next month, leading GBP lower near-term. However, If inflation is seen holding around current levels or, worse still, unexpectedly rising, this will feed into increased hawkish expectations and fresh move higher in GBP.
Sticky Core Inflation & Wage Growth
UK rate hike projections increased last month on the back of a sticky core inflation reading which caused some concern. Additionally, recent stickiness in UK wage growth data suggests that there are upside risks into tomorrow’s inflation data. Consequently, the data event will be a key volatility risk for GBP and UK assets alike.
Technical Views
GBPUSD
The rally in GBPUSD has seen the market breaking out above the bull channel top and above the 1.2659 level, hitting fresh highs for the year. While above here, and with momentum studies firmly bullish, the focus is on a further push higher with 1.2992 the next upside level in view for bulls.
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