BoE risks losing credibility after 25bp hike

multiple currencies
Fawad Razaqzada
By :  ,  Market Analyst

Following the BoE’s expected 25 basis point hike, the pound has dropped below $1.21 handle and the FTSE has come off its lows, although the latter remained deep in the red at the time of writing along with global indices as the market turmoil returned after a day of calm yesterday.

With the BoE seeing CPI at 11% -- no less -- in October, saying it will act forcefully if needed, and that it is particularly alert to more persistent inflation pressure…this begs the question: why not hike more aggressively now? Why wait?

 

Other central banks have been more aggressive in trying to tackle inflation, with the SNB surprising with a 50-basis point hike today and the Fed raising rates by 75 bp the day before.

 

Anyway, the resulting weaker exchange rate means the UK will import more inflation in the months ahead. This in turn may require more aggressive hikes in the coming months from the BoE. Credibility damaged. Pound heading back below $1.20?

 

 gbpusd 15min chart

 

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