British Pound: How are BoE tightening bets supporting sterling? – ING

Sterling’s relatively firm performance comes as markets fully price in a 25bp Bank of England (BoE) rate increase to 4.00% on Thursday, according to ING’s Chris Turner. Among the factors supporting the currency, he highlights high energy prices, stronger United Kingdom (UK) data, supportive fiscal policy and improving relations with the European Union (EU). Despite sizeable speculative short positions, Turner anticipates consolidation in EUR/GBP rather than a significant low for the cross.

Can Sterling retain support from a fully priced BoE hike?

"Sterling is trading reasonably well. Helping it has been the view that high energy prices leave the Bank of England no alternative but to hike rates on Thursday."

"A 25bp rate hike to 4.00% looks like a done deal."

"Upside economic surprises, UK fiscal policy seemingly heading in the right direction and warmer ties with the EU all seem to be helping sterling too."

"Notably, speculators are still running reasonably large short positions in sterling, which suggests this period of sterling outperformance can continue."

"EUR/GBP has come a long way very quickly – a near 4% drop in a little over a month. Some consolidation is probably due. But with high energy prices likely to keep expectations of higher UK policy rates in place until early next year and French budgetary problems unresolved, it is too early to expect a significant low in EUR/GBP."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)