Reuters poll suggests another 50bp hike from BoE
Daily Currency UpdateA poll undertaken to predict the Bank of England's next move next week, suggests the market is forecasting another 0.5% or 50 bps rise in interest rates, taking the bank's base rate to 3.5%. The central bank recently forecasted that the UK economy is on the brink of the longest and deepest recession it has ever seen, predicting it could last for the whole of 2023 and the first quarter of 2024. However, the BoE is focused on ensuring that inflation is bought under control, and though this inflationary pressure comes from supply-led issues, monetary policy changes are the only tool the central bank has in its armory. All eyes will be on next week, as UK households already face the burden of significantly higher energy prices and a rise in the cost of living, and this move will only put further pressure on household costs. The UK housing market could also take a further tumble after it was realised this week that house prices have fallen at their fastest rate since the height of the Covid-19 pandemic.
The US Dollar has spent much of this week on the backfoot with EURUSD now trading above the 1.0580 handles along with GBPUSD above 1.2270. It looks like the reason for a sell off is partly due to markets waiting on the PPI and consumer sentiment data from the US which is due later today. The headline factory-rate price index is seen at 7.4% from the prior release of 8.0% on an annual basis. Also, the core PPI is seen lower at 6.0% vs. the former figure of 6.7% in a similar period. Recent data in the US has been positive, which has led the market to forecast that the Federal Reserve could increase its interest rate peak next year, but much is still undecided and how quickly this monetary policy tightening will take place is still very much unknown.Cristine Lagarde's speech was watched closely yesterday for signs of what the single currency could do next. In addition, we saw ECB’s council member and governor of the French Central Bank, Villeroy, who stated in an interview this morning that growth in 2023 will be positive for the Eurozone and growth for the whole of 2022 will be 2.6%. From a Reuters poll, 51 of 60 economists believe that the ECB will raise rates by 50 basis points next week to 2.0%. The next barrier to cross for the EUR will be the 1.0615 handles which analysts suggest could be reached by early 2023. After a quiet week on the data front, markets are focused on all three major central bank's monetary policy announcements next week, and this could be the last hurrah for the markets after data quieten down over the festive period.
- GBP/USD: 1.2165 - 1.2250 ▲
- GBP/EUR: 1.1520 - 1.1635 ▲
- GBP/AUD: 1.7810 - 1.8265 ▼
- EUR/USD: 1.0480 - 1.0575 ▲