RationalFX: Sterling continued to out perform the euro on Friday as we edge closer to the expectations of an imminent rate hike from the Bank of England at the upcoming meeting.
The speculation was reinforced by the UK Finance Minister Rishi Sunak’s upbeat economic assessment during the Autumn Budget presentation last Wednesday. But this was also due to a dovish tone shown from European Central Bank President Lagarde as she acknowledged stronger-than-expected inflationary pressures but downplayed the need to hike interest rates.
However, Lagarde failed to convince investors that bets for an earlier policy tightening were misplaced amid the continuous rise in the Eurozone consumer prices for the fourth consecutive month in October.
In the case of monetary policy, the BoE looks much more likely to adopt a hawkish stance than the ECB, suggesting outperformance of the pound. Most recently, BoE’s Governor Andrew Bailey saw the Bank raising rates as soon as November.
GBP/USD saw its largest decline in a month on Friday after the dollar rallied after a response to data showing US inflation rates being pushed up to elevated levels by the fastest wage growth for decades.
This is the outcome which could urge the Federal Reserve to raise interest rates sooner than expected. The Fed will announce its November monetary policy decision on Wednesday and could likely take recent figures as a guidance regarding the possible change in interest rates.
The Fed will stress the pace of tapering is flexible and depends on the economic outlook. However, the Fed doesn’t want to raise interest rates while it is still buying assets.
Source : ETFWorld.co.uk