Bloomberg: Pound sterling remains under pressure after central banks’ decisions

Source: Bloomberg

Author: Samuel Indyk

Article: Original article

Publication date: Monday, December 19, 2022

Last Thursday, the Bank of England (BoE) raised its interest rate for the ninth time in a row, increasing it by 50 basis points (bps) to 3.5%. The Fed and the ECB also raised their key interest rates last week, but they were way more hawkish than the BoE, thereby signaling more significant rate hikes. In addition, the Fed and the ECB expect inflation to remain higher than a target level of 2% in the coming years.

Nevertheless, two out of nine Committee's policymakers advocate for status quo on the BoE’s interest rates; markets believe that the central bank may be nearing the end of its tightening cycle, as the economy seems to slow down in 2023.

George Vessey, UK currency strategist at Western Union Business Solutions, said that the scale of the pound’s rally for the past few months has baffled a lot of investors.

He also added that there could be room for further pound weakening, as markets still estimate the BoE’s rates at the level of 4.5% next year. However, the central bank predicts to stop raising rates at about 4%.

Forecast: a new cycle of the GBP/USD decline