Published on 04.08.2022 18:18

The Euro has surged higher against the British pound after the Bank of England announced its policy decision just a few moments ago and is currently trading just above the 0.8400 mark as the focus now shifts to the post interest rate decision press conference.

As was widely expected by analysts, the BoE's Monetary Policy Committee (MPC) voted unanimously to raise the benchmark rate by 50 bps - the biggest increase since 1995 - to 1.75%, or the highest level since late 2008. The British pound, however, witnesses a typical 'buy the rumor sell the fact' scenario as the rate hike was already priced into the market.

It wasn’t so much the 50-point rate hike that helped the Euro, it was the accompanying monetary statement that a UK recession will begin in the fourth quarter and last all the way through next year, which led to speculation that the UK Central Bank may be nearing the end of their rate hiking cycle.

GDP is forecast to drop 2.1 percent, that's the biggest contraction since the global financial crisis more than a decade ago.

The BOE also revised its forecasts for inflation to peak above 13 percent later this year, with prices rising throughout 2023. That's an increase from previous forecasts of 11 percent

The moves come as Governor Andrew Bailey deals with the highest inflation in 40 years – with soaring energy bills sparked by Russia’s war in Ukraine compounding the problem as well as a looming economic slowdown.

Looking further ahead today, the Euro direction against the greenback will be driven by the release of the initial jobless claim’s figures due for release later during the American session.

Should the figures come in above expectations the European currency may be sold of as it could set the stage tomorrow for a bumper non-farm payrolls report which will give the US Federal reserve to continue the path with their aggressive rate hiking cycle.