Further Sterling weakness seems likely – Commerzbank

The Bank of England (BoE) hiked its key rate by 50 bps to 4%, but it softened its communication notably. Sterling came under strong selling pressure following the event. Economists at Commerzbank expect further GBP weakness.

BoE signals rate hikes will end soon

“It became clear that the BoE is quite close to the end of its rate hike cycle.” 

“The impression suggests itself that the BoE might have hit the communication break a little too soon, as inflation is in double digits, and it will yet have to be seen whether it eases that quickly after all. The labour market seemed quite robust until now and the news of strikes signals that the risk of rising wages remains quite real.”

“Although the BoE left the door open for further rate hikes, from the FX market’s point of view a more decisive approach would have been desirable in view of the high uncertainty. Against this background, it is hardly surprising that Sterling eased and further Sterling weakness seems likely to us.”