The GBPUSD currency pair was trading up over 76 pips as the Sterling pound rallied against the US dollar, driven by the upbeat investor risk appetite. Investors are counting on the BoE’s promise to raise rates if inflation remains high.
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Unlike the Fed, which is now almost guaranteed to have reached the end of its rate-hiking cycle, the Bank of England has room to hike interest rates further, according to comments from BoE Governor Andrew Bailey.
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Speaking today, the BoE’s Chief Economist, Huw Pill, said that UK banks were well-capitalised and would play a crucial role in lowering inflation. However, UK inflation remains stubbornly high, causing many investors and analysts to bet on the BoE hiking rates in future to combat inflation.
The UK labour market remains robust as worker demand remains high, as well as wages, which could fuel inflation, causing it to remain high. The pound also benefits from renewed investor risk sentiment that has weakened the US dollar.
Yesterday’s production cut by the OPEC+ cartel has significantly impacted the currency markets as investors brace for higher crude oil prices, which will likely reverse the gains made by global central banks and governments in fighting inflation.
Some analysts now expect the Federal Reserve to continue hiking rates as the recent US banking crisis recedes and investor confidence about the US financial system and the stock markets is restored. Still, it is too early to bet on a Fed rate hike.
The Sterling pound has a better chance of rallying higher than the US dollar as the BoE has more leeway regarding hiking rates. However, the situation could shift significantly as oil prices rally and European countries start dealing with high oil prices.
The UK and other European countries were spared the brunt of high oil and gas prices during the recent winter months but may have to deal with the same during the spring and summer months if OPEC+ stock to their production cuts forcing oil prices to continue rising.
The GBPUSD’s rally today was fueled by the US dollar’s slump against most of its peers, as tracked by the US Dollar Index (DXY).
*This is not investment advice.
The GBPUSD price chart.
The GBPUSD currency pair was trading up 76.6 pips (0.62%) as the pound rallied against the US dollar.
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