BoE hikes by 25 bps

Daily Currency Update

Yesterday markets saw the Bank of England hike rates as most expected by 25 bps. This increased the base rate to 5.25%, the highest point since 2008. The decision was a three-way split. The split consisted of two policymakers voting for a 50-bps hike, one for leaving rates unchanged and the remaining for the 25-bps released. BoE Governor Bailey stated in his speech that he didn’t “think there was a case for a 50-basis point rate rise today”. In the build-up to the announcement, GBPUSD fell below the crucial support level of 1.2700 and traded around 1.2636 before recovering before the hike. Following the BoE’s increase Sterling fell once again but less severely.

The language from the monetary policy committee suggests they expect to reach the BoE’s terminal rate soon. Many economists still forecast another 25-bps hike in September and November bringing a peak rate of 5.75% to the market. However, expectations of a November hike have moved slightly lower. According to Bloomberg, there is a 90% chance of a hike in September and a 60% chance in November from the BoE.

German factory orders surprised markets this morning printing a rise by 7.0% MoM in June vs. -0.2% expected. On an annual basis, the orders have increased by 3.0% compared to the 4.4% decline seen in May.