Sterling Gallant on Thursday as Investors Anticipate a Rate Hike from the BoE

Sterling scaled a new five-month peak against the dollar in the London session on Thursday at 1.3748 but remained unchanged against the euro, as investors stayed glued to the potential of a rate hike from the Bank of England.

The GBP received some boost from investors as expectations for an additional rate hike intensified amid the rollout of booster COVID vaccines to citizens rather than deploying stringent lockdown measures.

Meanwhile, the British pound looks unfazed by the political pressure trailing Prime Minister Boris Johnson, who recently apologized in parliament for organizing a social gathering in May 2020 during a lockdown.

Sterling rose against the greenback by 400 basis points this morning after reclaiming its highest level since November 4 at 1.3695 overnight.

Meanwhile, the US dollar index (DXY) fell to a new two-month low following poor inflation data release, which showed that prices climbed in December as economists predicted.

Sterling Records Multi-Month High Against Euro Amid Hawkish BoE Outlook

The British pound also climbed by 0.1% against the EUR today at 83.50 pence, after hitting its highest point against the single currency since February 2020 on January 11. Analysts at Unicredit commented on the GBP’s renewed strength, noting: “The pound remains better positioned as long as markets continue to see prospects of a further aggressive tightening by the Bank of England this year.”

That said, capital markets have already begun pricing in an 80% chance of a 0.25% interest rate hike in February. ING analysts opined that: “Markets seem very skeptical to price-in any political instability in the UK, with the pound still scoring as the best performing currency of 2022.” The analysts added that:

“We continue to favor EUR/GBP downside and a break below 0.8300 in the near term, and another good day for risk sentiment would likely help the higher-beta GBP gain some more ground.”