Last week opened with a bout of range bound trading for GBP/USD pair, amid a lack of economic data or any fresh or major political/Brexit headlines. GBP investors were seemingly taking a cautious approach to trading ahead of Thursday’s Bank of England monetary policy announcement. The odds of a rate hike were priced at around 90%, and a rate hike thereafter (and before the end of the year) at about 12%.
And as expected, for the first time since March 2009 the Bank of England raised interest rates back to 0.75%. It was, however, the hawkish 9-0 vote from the bank’s MPC members that surprised the market slightly causing the pound to surge.
There are many thoughts that the high level of credit that consumers still hold could become a burden on some households, with levels of debt still relatively high. Waiting until 2019 could have been an option however for the Bank of England, however they pushed forward, buoyed perhaps by their upwards revision in growth. Moving forward Mark Carney stressed in his press conference that if the economy continues above and beyond its current path, which we hope it does, then more hikes will follow at a gradual pace. For sterling though, the risks still are centered around Brexit. Whilst there was a small bounce and the promise of further hikes down the line the market hasn’t flocked to the pound which suggests that Brexit concerns, which are many, still remain at the forefront.