Will BoE follow the FED?
After the FED surprise, it's the Bank of England's turn to attract attention. BoE will hold its monetary policy meeting on Thursday, June 16. Earlier in the United States, the FOMC meeting ended with a surprise. FED increased the rates by 75 bps compared with 50 bps expectations. It was the most significant rate hike since 1994.
BoE in the United Kingdom was the first G7 member to start rate hikes, and so far, since December 2021, the BoE's Monetary Policy Committee (MPC) has already increased the rates by 90 bps. Market participants are waiting for another 25 bps rate hike for Thursday's meeting. With the latest inflation data and earlier surprise in the US, now we should not take the 50 bps rate hike out from the table. However, economic conditions in the UK are different from the US; therefore, due to the downside risks that significant monetary tightening can bring, it is hard to accept the same surprise as FED in London. Consequently, we do not think BoE will be so hawkish to go toward higher numbers for its rate hike, but 50 bps in autumn is expected.
According to the Bloomberg survey of economists, we have just three votes for 50 bps among nine Monetary Policy Committee of BoE and the rest supporting the 25 bps. Therefore, the overall expectation is for the fifth consecutive rate rise, signaling another two rate hikes in the following meetings in August and November, which will be the first time BoE history has such a long raising rate rally.
On the other hand, for FED, we were not expecting the 75 bps rate hike, which happened, and now with what happened in the US, a 50 bps rate hike by the UK central bank is not inconceivable. GBPUSD could confirm a bullish reversal from a two-year low if this surprise happens. The only reason the central bank in the United Kingdom could be to go towards 50 bps is that they also say that controlling the inflation is their priority at the moment, while it is rising fast towards 10%.
More than expected Hawkish policies and stance will be negative for GBPUSD and vice-versa. However, it is not just about the rate numbers; please do not forget to watch the Mr. Bailey press conference.
