A rate hike by the Bank of England does not seem as certain as it did just weeks ago
There’s trouble brewing for the pound as the UK tightens its coronavirus restrictions again.
Unlike their peers in other big currency markets, pound traders are having to recalibrate their expectations for central bank policy. Parts of Europe face far stricter lockdowns, yet there is little question the European Central Bank will remain dovish. And in the US hawkish expectations for the Federal Reserve continue to build, lifting the dollar.
“Cautious comments from BOE officials and further Covid-19 restrictions mean that it’s more likely to delay raising rates until there’s more clarity on Omicron’s impact,” said Lee Hardman, a strategist at MUFG. He expects sterling to dip towards its lowest since November 2020, when fears prevailed that a Brexit deal could not be reached. “In contrast we expect the Fed to speed up tightening plans” in the week ahead.
Not everyone is so bearish. While Barclays expects the BOE will start raising rates in February, passing on Thursday’s meeting is not going to cause “much of a disappointment for financial markets”, said Eimear Daly, an analyst at the firm.
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