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Rate Hikes Driver For Sterling

Rate Hikes Driver For Sterling

The British pound is seeing a strong start to 2022, with gains against the euro coming in the first week and a strong advance against the dollar recorded in the second week of the new year. An assessment of the factors underpinning Sterling’s advance reveals that the outlook could stay constructive over the short-term, a view maintained by a number of well renowned market analysts.

The ultimate driver of Sterling though in the near and longer-term remains Bank of England policy, which is in turn determined by the strength of the economy. Currently money markets are pricing for a February rate hike and further hikes that would take Bank Rate to 1.0% by year end as the Bank seeks to quell rising inflation in an economy that could already be back to full employment.

In level terms, GBP/EUR opens this morning circa 1.1975 whilst GBP/USD continues its move higher to trade at the 1.3730 mark. The EUR/USD finally looks to have picked up some upside momentum to open near the 1.1470 level after more than a month of range bound trading. 

Data wise, sees a somewhat quieter day with US retail sales due later today and ECB President Christine Lagarde speaking at the Conference of Parliamentary Committees for Union Affairs.

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