Cable ended yesterday’s trading session in a stronger position as the US dollar encountered selling pressure due to a particularly soft inflation reading.
But having added half a percent to close Wednesday at 1.241, the GBP/USD pair has since cut back slightly to 1.238 in this morning’s Asia trading window.
GBP/USD cuts back slightly on Thursday morning – Source: capital.com
The pound is still in a strong position against the dollar though, as the market gears up for today’s interest rate decision from the Bank of England.
A 50 bps hike in line with yesterday’s Federal Reserve announcement is more or less a given, but the real story will be in the BoE’s forward projections.
Gilt yields have come down a long way since the mini-budget armageddon, but have started rising in the past week, suggesting that the market could be pricing in rate rises on the hawkish side in 2023.
Despite Sterling’s pre-policy announcement volatility streak against the greenback (see below), the EUR/GBP trading pair remains wedded to the 86p price point
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Source: Pantheon Macroeconomics
We’ll also get an interest rate decision from the European Central Bank today.
Eurozone inflation is still particularly painful, but a reversion to 50 bps following two straight bouts of jumbo hikes is largely expected.
Whether that results in a softening of the euro against the US dollar will depend on what the bank has in store for 2023. In the meantime, EUR/USD remains strong at 1.065, despite edging back around 0.2% from an intraday high of 1.068 in this morning’s Asia hours.