GBPUSD Spikes Higher on BoE Rate Hike, Falls on Bailey Speech

The GBPUSD currency pair was trading down over 44 pips after making a new 2023 top following the Bank of England rate hike. The much anticipated 12th consecutive rate hike from the BoE resulted in a spike higher and then a selloff in the currency pair as BoE Governor Andrew Bailey spoke. 

Bailey expressed confidence that he expects UK inflation to fall drastically from April as the central bank’s lending rate rests at a high of 4.50%, following the 0.25% rate hike. The pound’s weakness can be attributed to investor expectations that the BoE could be approaching the end of its tightening cycle. 

A key highlight of Bailey’s speech was that UK GDP growth remained weak despite the recent upward revision as the high interest rates continue to be felt across the economy. However, Bailey promised to adjust the inflation rate appropriately to return inflation sustainably to its target. 

Seven BoE’s Monetary Policy Committee (MPC) members tasked with setting interest rates voted for the hike. In contrast, two members, Silvana Tenreyro and Swati Dhingra, voted for rates to remain unchanged at 4.25%.

The BoE also indicated that it would keep raising rates to contain high inflation if the situation did not change. However, Bailey’s speech painted a different picture as he said that he expects inflation to fall significantly in the coming months. 

The BoE Governor revealed high expectations for the UK economy, where he expects GDP growth to be relatively flat in H1 2023 but to pick up in H2 as inflation falls and demand for goods and services rises across the UK. 

Bailey also expressed concern for British people who have to bear sharp increases in food prices, although he reassured the markets that the central bank was seeing signs that food inflation would start falling over time. 

The Governor also said that he expects inflation to halve by the end of 2023, although his ultimate goal is to bring it back to the Bank of England’s target of 2%. Investors were also concerned about the US debt ceiling, but this did not stop the dollar from rising against the pound. 

*This is not investment advice. 

The GBPUSD price chart.

The GBPUSD currency pair was trading down 44.3 pips (0.35%) after the Bank of England rate hike.