BoE hikes, ECB steady; wants to see inflation “durably” at target

GBPUSD rallied to 2-week highs of 1.3628 from near 1.3560 following the as-expected 25 basis point BoE rate hike, and generally more hawkish statement from the Bank. The US Dollar was mixed following the mix of data, which saw productivity rise more than expected, labor costs rise less than expected, and jobless claims drop more than forecast. USDJPY idles at 114.90, while EURUSD popped up to 1.1310 from 1.1290, though this was likely a fallout from the ECB announcement.

BoE hiked rates by 25 bp to 0.50%, with four dissenters actually arguing for a 50 bp rise as inflation continues to spike. The BoE plans to fully unwind its stock of corporate bond purchases by 2023, which means quantitative tightening is underway.

The ECB confirmed rates and guidance, with no commitment to an end to net asset purchases yet. The initial press release wasn’t much changed from December, but the central bank’s focus on trying to bring inflation “up” to target is starting to sound increasingly out of touch with reality. Vowing to keep rates at current or lower levels until “realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at 2% over the medium term” when inflation is running at 5.1% and set to once again exceed the ECB’s projections is difficult to follow, as is calling the record highs “moderately above target”.

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Stuart Cowell

Head Market Analyst

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