Sterling Bulls Offered Hope as Bank of England Raises August Rate Hike Bets

GBPUSD Analysis and News

• GBP Surges After 6-3 Hawkish Vote Split
• Market Pricing for an August Rate Hike rises to 45% from 33% prior to announcement

See how retail traders are positioning in GBPUSD as well as other major FX pairs on an intraday basis using the DailyFX speculative positioning data on the sentiment page.

BoE Offers Sterling Bulls Some Hope

The Bank of England unsurprisingly kept rate unchanged at 0.5%, however, the vote-split of 6-3 had grabbed the attention, with the BoE Chief Economist, Haldane, (first time a Chief Economist has dissented in 7yrs) joining McCafferty and Saunders as the hawkish dissenter. Subsequently, GBPUSD rose to session highs from 1.3130 to 1.3190 as money markets reprice an August rate hike, which is now seen at 46% from 33% prior to the announcement.

Source: Thomson Reuters (Current Bank of England Rate Hike Expectations)

Temporary Q1 Economic Weakness

The MPC stated that they were more confident that the weakness observed in Q1 was temporary, as such, they boosted their forecast for Q2 growth to 0.4% from 0.2%. In regard to inflation, the BoE expects CPI to pick up more than expected in the near term due to the rise in oil prices, which in turn increases the necessity for the BoE to hike in order to bring inflation back towards their 2% target (CPI sits at 2.4% currently). Additionally, the BoE altered its guidance on asset purchases, having stated that reduction will not take place until when the Bank Rate reaches 1.5% as opposed to 2% previously.

GBP/USD PRICE CHART: 1-MINUTE TIME FRAME (Intraday)

Chart by IG

GBP Traders Look out for Carney

Eyes will now towards Bank of England Governor Carney in which he is set to speak at 2015GMT at the Mansion House. Subsequently, focus will be on whether the Governor provides a strong signal for a potential hike in August. Reminder, Carney last spoke on May 24th and stated that the BoE could tolerate a lengthier inflation overshoot and endorsed gradual path for rate rises.

Additional articles on GBP

• GBPUSD Forecast: Central Bank ’Double’ to Govern Sterling’s Fate

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX