GBP/USD: Sterling to react strongly if the BoE sounds more hawkish than expected – Commerzbank

GBP/USD is trading in negative territory at around mid-1.13s. What the Bank of England signals regarding the speed of future rate hikes is decisive for sterling’s development, economists at Commerzbank report. 

BoE set to hike its key rate by 75 bps

“It is expected that the BoE will hike its key rate by 75 bps which would be the biggest step since the late 80s; which would be in line with the highest rise of inflation levels since then, with inflation reaching 10.1% in September.”

“It is generally expected that the BoE will seem cautious and present today’s step as the exception rather than the new norm. In view of the economic risks – not least due to the presumably more restrictive fiscal policy – that seems likely from our point of view too. In that case, the market is not likely to react with much surprise.”

“We would expect a stronger market reaction if the BoE sounds more hawkish than expected. This would not be a bad strategic step to strengthen market confidence in its fight against inflation. However, in view of the recovery on the gilt market as well as the FX market it might not see much need for that, which might well come back to haunt it long-term though.”

See – BoE Preview: Forecasts from 10 major banks, big rate hike in doubt