The Bank of England is widely expected to hike rates to 0.75% today, which would be its third straight rate rise. The market sees another six more quarter point moves this year taking rates above 2%.UK inflation is potentially set to rise to 8% in the near term and stay higher than originally projected.
Consensus currently sees the bank more concerned about higher prices than the risk of economic weakness. Key will be if there is a split among the MPC voting. There is the chance of a three-way divide with no change, a 25bp rise and a 50bp rise on the cards. Focus will also be on the language and any possible loosening around further tightening due to the Ukraine crisis.
That said, the bank may continue to prefer a strong pound to protect against higher gas prices and yet more pain for consumers. This would not be a surprise but would be hawkish and more positive for GBP.
GBP/USD pushes above resistance
Cable has declined rapidly from above 1.35 just a few weeks ago. Consolidation above 1.33 also saw another sharp break lower and through the December low at 1.3160.
Prices went into oversold territory at the end of last week and printed a cycle low at 1.2999/00. This big figure area becomes major support followed by limited markers until 1.29.
The rebound has taken out trendline resistance at 1.31. The barrier around the December low also now become support on this morning’s advance. The MACD is close to flat while the daily RSI is nearing 50 and neutral for momentum. If the BoE is more hawkish, buyers will aim for the 21-day SMA at 1.3241. Next resistance above here is 1.3271/72.
