Markets displayed volatility last week as a result of Februarys MPC meetings with the Bank of England and European Central Bank. Market predictions of another interest rate hike were confirmed as the BoE increased their interest rates from 0.25% to 0.50% in an attempt to contain soaring inflation. This is the first back-to-back rate hike since 2004. The BoE also announced that after nearly a decade of quantitative easing (QE) they will start to implement quantitative tightening (QT).
The decision for another rate increase resulted in the pound trading at above 1.2060. This two-year high was short lived as opening comments made by Christine Lagarde delivered a dramatic shift in stance from the ECB. She stated that the governing council had expressed a unanimous concern about inflation which reached 5.1% in January. She also commented "risks to the inflation outlook are tilted to the upside, particularly in the near term."
These comments led to a widespread speculation in financial markets that the outlook of a rate hike in the eurozone is on the horizon. These hawkish comments saw the EUR/GBP exchange rate increase from 0.8285 to 0.84, knocking the pound from its two year high.
As we entered this week markets have settled, and the pound has stabilised trading above 1.185. Markets expect the BoE to issue another four rate increases before the year is out meaning the BoE base rate is expected to reach 1.5% as we enter 2023
Markets displayed volatility last week as a result of Februarys MPC meetings with the Bank of England and European Central Bank. Market predictions of another interest rate hike were confirmed as the BoE increased their interest rates from 0.25% to 0.50% in an attempt to contain soaring inflation. This is the first back-to-back rate hike since 2004. The BoE also announced that after nearly a decade of quantitative easing (QE) they will start to implement quantitative tightening (QT).
The decision for another rate increase resulted in the pound trading at above 1.2060. This two-year high was short lived as opening comments made by Christine Lagarde delivered a dramatic shift in stance from the ECB. She stated that the governing council had expressed a unanimous concern about inflation which reached 5.1% in January. She also commented "risks to the inflation outlook are tilted to the upside, particularly in the near term."
These comments led to a widespread speculation in financial markets that the outlook of a rate hike in the eurozone is on the horizon. These hawkish comments saw the EUR/GBP exchange rate increase from 0.8285 to 0.84, knocking the pound from its two year high.
As we entered this week markets have settled, and the pound has stabilised trading above 1.185. Markets expect the BoE to issue another four rate increases before the year is out meaning the BoE base rate is expected to reach 1.5% as we enter 2023.
