Considering what the Federal Reserve and the Bank of England might do over the next months, analysts at Rabobank, see the GBP/USD pair likely to move sideways in a range above 1.30. Both central banks will have their policy meetings this week.
“Central bank meetings will be vying for some attention this week amid the headlines related to the war in Ukraine. These two topics can be broken down further. From Ukraine there have been both positive and negative headlines over the weekend which provide contrasting implications for the safe haven USD. On top of that, while the central bank meetings in the US and the UK are both expected to bring rate hikes, the tone from the respective policy makers is expected to differ considerably. Cable has declined sharply since the start of the conflict in Ukraine and we expect the pound to remain on the back foot going forward.”
“Both the Fed and the BoE are expected to raise rates by 25 bps this week. However, the MPC is likely to do so with far less enthusiasm. A hike this week for the BoE would mark the third consecutive move and the voting pattern of MPC members is likely to illustrate far less conviction than in the February and December policy meetings.”
“The indication of various central banks in the past couple of weeks is that pre-invasion plans for policy tightening remain mostly intact. Despite the inevitable impact on growth, central bankers are fearing that inflation expectations will become entrenched and that this could feed through into a stubborn wage/price spiral. The fact that the BoE was one of the first G10 central banks to tighten this cycle is suggestive of its commitment to avoid second order price pressures to gain too strong a foothold. That said, significant head-winds are facing the UK economy in the form of higher energy and tax bills and the Bank may already be running out of room to hike rates. Consequently it is likely that relative to the Fed, the BoE will sound a more cautious note at this week’s policy meeting and this could weigh on cable.”
“In our view cable could remains mostly within a GBP/USD 1.30 to 1.33 range in the coming months.”