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Bank of England raises interest rates

Daily Currency Update

The Bank of England raised interest rates from 0.5% to 0.75% as expected yesterday, its third hike in as many meetings. Despite interest rates now being at pre-pandemic levels the pound actually fell when the decision was announced. The reason for the fall was that markets were expecting a unanimous 9-0 vote in favour of raising rates, however the vote saw one of the members of the Monetary Policy Committee break ranks and vote to keep them on hold. Jon Cunliffe, Deputy Governor of the Bank of England, was the sole opponent to a hike citing that the rising cost of commodities could see consumer demand slump causing economic growth to falter.

It seems that we could see one more hike in interest rates in May, however there are doubts over whether policy makers will be keen to push them any higher in the face of growing economic uncertainty due to the Russia-Ukraine war. GBP/USD managed to briefly get above 1.32 ahead of the decision, then rapidly retraced to drop under 1.31 on the back of the slightly less optimistic outlook from the Bank. It has since steadied and currently trades around 1.3140 with GBP/EUR just below 1.19.

Key Movers

From the States there were a couple of data releases yesterday with both the monthly Philly Fed Manufacturing Index and weekly Unemployment Claims both beating forecasts. The war remains a driver of financial markets. The US dollar continues to be the currency of favour on the back of its safe haven status among investors, although it has lost a little ground versus the euro with EUR/USD creeping back up towards 1.11.

Expected Ranges

  • GBP/USD: 1.3080 - 1.3210 ▼
  • GBP/EUR: 1.1810 - 1.1950 ▼
  • GBP/AUD: 1.7735 - 1.7875 ▼
  • EUR/USD: 1.0980 - 1.1125 ▲