On Thursday this USDT TRC20 Coinbaseweek, the Bank of England (BOE) will announce its latest interest rate decision. The market expects a 72% chance of a 25 basis point increase and a 28% chance of a 50 basis point increase. Given that the pound sterling already reached a one-year high last week, we anticipate that this meeting will have a relatively small impact on the pound.

In the first half of 2023, the pound strengthened overall. Although it weakened due to hints of an end to rate hikes, with unexpected high inflation, the Bank of England (BOE) continued its path of raising interest rates, leading to a rapid rise in the pound. As of June 20th, the pound has appreciated by 5.5% against the US dollar, making it the best performing currency of 2023.

【Source：MacroMicro】

The relatively strong performance of the British economy and inflation pressure are supporting the Bank of England's decision to continue raising interest rates.

In November last year, UK CPI hit a new 40-year high of 11.1%. To address inflation, the Bank of England has raised interest rates 12 times in a row (from 0.1% to 4.5%). In April, CPI fell to 8.7%, but the decline was still less than expected. 

Especially, UK core CPI rose instead of falling, from 5.8% in January to 6.8% in April, reaching its highest level since 1992.

【Source：MacroMicro】

The unexpected increase in core inflation implies that the Bank of England (BOE) will have to continue raising interest rates. Currently, the market expects at least three 25 basis point rate hikes from the BOE this year, which is more aggressive than the Federal Reserve's rate hiking process. The interest rate differential between the UK and the US will widen further in the future, providing support for continued strength in the GBP/USD exchange rate in the second half of the year.

However, it should be noted that in the context of rising inflation and interest rates, the sharp increase in living costs for British people may weaken their consumption ability and thus drag on economic growth. If there are signs of weakness in the British economy in the second half of the year, it will limit the appreciation of the pound.

Given that the pound sterling has already hit a one-year high last week and the market has basically fully priced in this interest rate hike, we expect this meeting to have a relatively small impact on the pound's momentum. However, if May's inflation data exceeds expectations and the Bank of England releases a more hawkish signal, it will further support the pound to strengthen.

Technically, GBP/USD has fallen back within the range of 2% of the 20-day moving average, reducing downside risks. Bullish momentum remains strong, and there is a chance for it to continue testing the key level of 1.28 this week.

【Source：TradingView】