BoE hikes rates to 5.25%, GBP slides

By Naeem Aslam  

With inflation running at the highest level among G7 nations, the Bank of England has no easy task on its hands.

The UK central bank’s decision to hike interest rates by 25bp, as expected to 5.25%, should not come as a surprise at all, and we believe that there are higher chances that the BoE will take the interest rates all the way to 5.8% — the highest level that we saw back in 2007.

As for the price action, we must let the dust settle, and then a clear picture will emerge. For now, there is a lot of trading taking place in terms of emotions and concerns about the economic crisis in the UK.

Volatile

But one thing is clear: Sterling’s price action is going to remain immensely volatile as the BoE keeps its hawkish tone for some time.

The Pound tracked bond yields and fell against the Euro and Dollar. GBPEUR fell to 1.1580 in the minutes following the decision, while the GBPUSD exchange rate extended its decline to 1.2668.

The housing stocks in the UK are under pressure as demand is going to be influenced more adversely.

Buyers know that there are higher chances for the prices to shift downward, and under those circumstances, they may not be going to buy.

 

Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.