The British pound seems to have found some support over the past few day at the $139.50 level after sustaining substantial losses over the past week and as we move towards next month’s interest rate decision from the bank of England, analysts remain divided over the direction of the British currency.
The pound has been on a solid run since the start of the year against its US counterpart after expectations grew that the Bank of England would continue their rate hiking cycle after inflation hit 3 percent, which is well above the central bank’s target range of 2 percent.
That all came crashing down last week when BOE governor Mark Carney noted that although he expects higher rates this year, the market should not count on one next month which has sent the pound reeling ever since the comments were made.
Analysts now believe there is only a 50 percent chance now of a rate hike in May and a 2nd hike that so many were predicting earlier in the year now seems a distant memory.
"Carney started to talk down the May hike that markets have been pricing in as a slamdunk since mid-February. His comments come in the wake of a soft CPI print alongside a soft patch in the data that has seen markets rethink the prospects of a hike next month”. says Mark McCormick, North American Head of FX Strategy with TD Securities.
“Brexit headlines have not helped. We suspect that the Bank is likely to deliver one more hike this year but should shift to the sidelines afterward," he added.
Some however believe the pullback in the pound is temporary and the market will eventually brush off rate hike concerns and concentrate on the fundamental nd other factors of the currency.
“GBP may have lost momentum after a period of strong performance since the beginning of March, but we do not think that GBP has lost its shine.” Said analysts at Danske bank.
“We still expect the BoE to hike in May, which is now only priced with a 50/50 probability, and given the relatively subdued pricing of future BoE rate hikes, we see room for GBP appreciation both in the short term and longer term.” They added