- BoE’s Vlieghe has openly backed a possibility of a rate hike in coming months
- Vlieghe has been viewed as one of the most dovish member so far
- GBPUSD soars to the highest level since Brexit referendum
This week has been exceptionally hectic for the British pound as it’s gotten a slew of the significant data. On top of that, the BoE nodded that a reduction of some stimulus might be justified in the coming months. However, it’s not the end of upbeat stories for the pound as BoE’s Vlieghe, who has been viewed as one of the most dovish member within the whole MPC, seems to accord with the hawkish stance of the Bank of England.
Cutting to the chase, he said that he might back up hiking rates within months. He also admitted that slack in the labor market is being eroded while wage pressures are gently growing. According to him, the UK equilibrium rate may be rising and there are chances of upward pressures on inflation. Those hawkish remarks place him among those members who say an increase in borrowing costs could be needed soon.
As a result, the UK10Y yield has soared 5bps playing into the pound’s hands which has already struck the highest level since the Brexit referendum against the US dollar. At the end of the day, let us point out that implied probability of a rate increase this year has surged from 27% to 77% since the beginning of the week. On the flip side, there is a possibility that the BoE and other members have intended to lift the pound in order to reduce its impact on inflation. Hence, even as they seem to be poised to begin rising rates as soon as this year, it’s not by far a done deal.
The GBPUSD strikes the highest level since the Brexit referendum in June 2016. Source: xStation5
Technically, the GBPUSD has already recouped all its losses made in the days after the Brexit referendum. Given that we’re heading to the end of the week, a weekly candlestick might be crucial when it comes to the nearest future for the pair. If the price holds above the current levels, a further move higher might be on the cards. On the other hand, if buyers lose their momentum, a correction towards 1.3450 cannot be ruled out
The EURGBP collapsed in the aftermath of Vlieghe’s remarks. Source: xStation5
The EURGBP slumped immediately after Vlieghe’s remarks hit the wires. As for now, the pair is trading slightly above a significant support zone at 0.8800. If the price manages to draw a bullish candlestick, it could lead to a corrective move. By and large, much deeper declines on the ERUGBP could me contained given current momentum in both economies.