BoE Becomes First in Interest Rate Increment
ZFX – The Bank of England leads the charge as the first major central bank to increase interest rates post COVID-19 pandemic with stern warnings that inflation will triple the increment, hitting 6% by April next year.
Coming to a surprise to investors the second time in 2 months, the BoE claims that the decision is a given as it’s expecting the Omicron variant to influence inflationary pressures.
A vote of 8-1 from the nine members of the Monetary Policy Committee resulted into raising the Bank Rate from 0.1% to 0.25%. The only vote against the decision was from Silvana Tenreyro, an external member.
“The Omicron variant has already hurt retailers and restaurants but the BoE is on the path to put a halt on the recent price spikes from becoming a problem in the long-term,” said Governor Andrew Bailey.
“We’re worried about inflation over the medium term. And we’re looking at things now that could threaten that. So that’s why we have to act,” Bailey said.
It’s unclear if the new variant will increase or reduce pressure from inflation. “…and that is a crucial matter to us.” he continued.
Most economists polled by Reuters expect the BoE to keep Bank Rates at 0.1% due to the Omicron variant, which pushed COVID-19 cases in the UK to a record high on Wednesday.
The BoE points to the possibility of “more moderate monetary policy tightening” over the three-year forecast period although inflation could prove weaker or stronger than expected.
Investors rushed to fully appreciate another hike in Bank Rates to 0.5% in March and to 1% in September.
A rate hike on Thursday puts the BoE ahead of the U.S. Federal Reserve, which is accelerating the removal of its bond-buying stimulus, and the possibility of three rate hikes in 2022.
The European Central Bank and Japan’s central bank are showing no signs of immediately raising borrowing costs.
The ECB on Thursday reduced its stimulus further but pledged support for the eurozone economy in 2022.
In response to this encouraging news, Sterling jumped nearly a penny against the US dollar to its highest level since November 30. Indeed, GBPUSD has broken its downtrendline since last December 10, but this rate hike is an important catalyst so that GU can provide valid confirmation of its trend change to bullish in the short term, at least on the H4 timeframe.
Technical signals aided by fundamental impetus from rate hikes provided power for GBPUSD to cross resistance at 1.32700. Now GBPUSD is above the 50 and 100 MAs, but is below the key 1.33600 key level which will also intersect with the 200 MA.
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