British pound under pressure ahead of Bank of England decision

• BoE expected to raise rates at Thursday meeting
• Money markets are split over extent of rate hike

The British pound is slightly lower on Thursday. In the European session, GBP/USD is trading at 1.2685, down 0.19%. The pound has been struggling and is down 1.26% this week.

BoE expected to raise rates

The Bank of England meets later today and policy makers have a tough decision on their hands. Will they raise rates by 25 basis points or be more aggressive and deliver a 50-bp hike? The BoE has raised rates 13 consecutive times since December 2021 and is widely expected to continue hiking at today’s meeting.

The money markets have priced in a 25-bp increase at 62%, with a 38% chance of a 50-bp hike. That means the meeting is live and we could see some volatility from the pound following the rate announcement. The BoE’s decision may well depend on whether inflation is moving downwards fast enough. Headline CPI fell to 7.9% in June, down from 8.7%. Core CPI has been stickier and was unchanged in June at 6.9%.

The BoE is well aware that its tightening is causing plenty of pain for consumers, but inflation remains public enemy number one, and there is a great deal of distance before inflation is brought down closer to the 2% target. Can the BoE afford to raise by just 25-bp or is a second consecutive hike of 50-bp needed? The BoE has played its cards close to the chest and that is likely the reason we are seeing the split amongst investors as to how high a raise we’ll see later today.

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GBP/USD Technical

• There is resistance at 1.2744 and 1.2870
•  1.2637 and 1.2511 are providing support

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