GBP/USD set to test the 1.3750 January highs fueled by BoE's hawkish tone – ING

A hawkish Bank of England raised rates and there is surely more to come, according to economists at ING. They now expect further rate rises in March and May, which should underpin the pound.

Hawkish BoE set to give more support

“The BoE hiked interest rates by 25bp yesterday, starting the reduction of its balance sheet, in line with expectations. More crucially, four out of nine MPC members voted for a 50bp increase, which sent a strong signal of endorsement to the market’s pricing for five more rate hikes this year.”

“We now expect rates to be raised again in March and May. While market pricing on tightening appears a bit too hawkish, this may not be challenged until later in the year, which should leave the pound able to withstand any appreciating pressures in the dollar and the euro.” 

“A continuation of the soft dollar environment today could see cable test the 1.3750 January highs, while EUR/GBP could stabilise around 0.8400 now after a short-lived move yesterday to the 0.8300 mark.”