- The UK still faces the threat of continued inflationary pressure from a tight labor market.
- The market expects the BoE to raise interest rates to 4% at its next meeting.
- The market now expects the BoE rate to peak at 4.5% in June.
The outlook for GBP/USD today is bullish. Bank of England chief economist Hugh Pill said on Monday that the UK continues to face the threat of inflationary pressures even if natural gas prices stabilize or fall. This is due to a tight labor market, suggesting additional rate increases may be necessary.
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Pill’s speech is about the first monetary policy of the year by BoE officials, leaving economists and markets wondering how close the BoE is to the end of its rate hike cycle.
Financial markets expect the BoE to raise interest rates to 4% at its next policy announcement on 2nd February. The central bank raised its benchmark interest rate to 3.5% in December from 0.1% a year earlier.
Economists surveyed by Reuters in December had expected a peak of 4.25% in the second quarter of 2023, but the market now expects the BoE rate to peak at 4.5% in June. .
The UK economy appears headed for a short recession, with inflation eased slightly from a 41-year high of 11.1% in October.
The BoE had expected overall inflation to fall if natural gas prices were to remain flat this year. UK natural gas prices fell to levels similar to a year ago after rising in the wake of Russia’s invasion of Ukraine in February.
GBP/USD major events today
Investors will pay close attention to today’s speech by Fed Chairman Jerome Powell.
GBP/USD Technical Outlook: Bears May Not Break Above 1.2101 Support
GBP/USD is pausing at the 1.2200 resistance level on the 4-hour chart. This comes after a strong bull move with the price well above the 30-SMA and the RSI above 50.
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However, the bulls are still strong and the price may not break below this level. The bulls will come back and try to break out of the 1.2200 resistance. Bears are carried over only if the price falls below the 30-SMA.
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