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Below Quote On Currency by Heena Naik- Research Analyst - Currency, Angel One Ltd

On 15^th Dec’22, the BoE policy setting committee hiked the interest rates by 50 basis points as widely anticipated, lifting it from 3.00 percent to 3.50 percent. The move was mainly done to tackle inflation, which currently is at a 41 year high. Apparently, inflation in the UK has become a serious concern – from Brexit to covid after-effects and Ukraine-Russia’s war which pushed the energy prices to sky high impacting the energy bills.
 

BoE Governor Andrew Bailey, in a letter to finance minister Jeremy Hunt accompanying the decision, said the BoE forecasts suggested British inflation had reached its peak. Surging prices are eroding the value of wages, causing public and private sector workers to go on strike to secure higher salaries.
 

Despite this, the committee was still divided on the rate hike move with only six members out of three voting in favor of the move. One policymaker, Catherine Mann, wanted a bigger rate hike (75 bps) this month to tackle what she viewed as increased inflation risks since November. Two other policymakers, Silvana Tenreyro and Swati Dhingra, felt it was now time to halt rate rises entirely.
 

Apart from this, the committee added that it expects the United Kingdom’s economy to contract 0.1 percent in the fourth quarter, better than its previous forecast for a contraction of 0.3 percent. The BoE and UK government both believe the British economy has entered a recession that is expected to last all next year on fallout from rocketing energy and fuel bills.
 

All the above factors pushed the Pound into the bearish territory as market participants felt that the policy had a dovish tone. Indeed, a closer inspection of the statement and minutes suggests this was a 'hawkish' hike. Going forward, GBPINR Spot (CMP: 101.14) is likely to move higher towards 103 levels by the end of this year 2022.

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