British Pound to Dollars slightly higher as Bank of England decides to hike interest rates. There are signs of improvement in the Russia-Ukraine talks.
British Pound to Dollars Improves on Rate Hike
Bank of England hikes interest rates by 0.25%. Interest rates in the United Kingdom are at 0.75%. Inflation will reach 8% in the second quarter, states BoE.
Band of England voted 8 to 1 to raise rates by 25 basis points. The British Pound saw heavy selling as investors showed disappointment in the BoE policy rates, as the bank hikes rates with caution.
Even before the economy could recover from the pandemic and the Brexit jitters, the country is facing another crisis. The Russian war on Ukraine hinders economic growth, say bank authorities. Bank of England took a cautious note on policy rates as the economy faces high inflation and supply chain disruptions. High inflation, disruption in crude supply, and increasing commodity prices are the currenct problems in the country.
Ukraine-Russia Talks Show Improvement
Diplomatic talks between Ukraine and Russia show signs of hope. Investors expect a peaceful agreement, which keeps the forex market in the bull grip. Talk between Russia and Ukraine progress slowly as people pray for a positive outcome.
The Ukraine crisis worsened the inflation problem in the United Kingdom and the European Union. Commodity prices are surging higher. Bank authorities say that the ordinary household is affected by the rising commodity prices and cannot afford aggressive rate hikes.
Investors expected a hawkish decision from the Bank of England. But the Ukraine war must be taken into consideration, say bank authorities.
Meanwhile, the US President held talks with the Chinese president last week. But there is uncertainty over the conflicting war. The sanctions raised by the US against Russia have weakened the economy. But President Putin continues on his warpath.
Supply chains disruptions continue as crude exports have come down. Sanctions raised against Russia by the US and the UK has halted crude supply. However, the European Union did not ban crude imports from Russia. Covid-19 pandemic had lowered economic growth in the western countries. Just when things were getting back to normal, the Russian attack on Ukraine worsened matters again.
Oil prices soared to more than $139 per barrel when Russia started its invasion of Ukraine. Crude prices were at $109 per barrel, while West Texas Intermediate prices were $106 per barrel last week.
British Pound to USD at Multi-Month Low
The British Pound to US Dollars declines to levels last seen in November 2020. The Sterling was on a declining trend from June 2021 for more than nine months. The British Pound slipped to 1.30 levels at the beginning of the week but recovered to 1.3180 levels by the weekend.
The GBP/USD took support at the 1.30 levels on March 14, 2020. The 200 DMA placed at this level has been very supportive for Sterling.
US Dollar Weakens
In the US, the Fed hiked interest rates by 25 basis points. It has been three years since the Fed last raised interest rates. Inflation is at a four-decade high, and rate hikes will deal with inflation, says the Fed. More rates are coming, say authorities.
The Dollar’s weakness is helping the British Pound gain strength. The US Dollar touched 98.19 last week, after which it has been declining. The DXY closed at 98.27 last week. Fed officials expect six more hikes in rates this year.
The US President Joe Biden held talks with his Chinese counterpart. He threatens China with sanctions if they provide military and financial assistance to Russia.
GBP/EUR at 1.19
GBP/EUR currency pair trades at 1.19 on the foreign currency exchange.
The tension between Russia and Ukraine has to calm down to lower inflation. The disruption in the supply chain affects production. The import of crude oil has come down, and crude prices are sky-rocketing.
Just earlier, the Brexit problem created ripples in the economy. In 2020 and 2021, the pandemic brought in lockdown and restriction in the economy. The supply chain is constantly affecting the normal functioning of businesses. The present war conditions in Ukraine, further affect the economy negatively, as inflation is high. ECB President Lagarde says that a hike in interest rates is the solution to handle high inflation.
GBP/JPY at Multi-Month Lows
The GBP/JPY currency pair closed at 157.07 last week in the forex market, and the Japanese Yen is an underperformer this week. The Bank of Japan keeps rates unchanged, and the British Pound to Japanese Yen trades at a multi-year high, at levels last seen in 2016.
Bank of Japan Governor Haruhiko Kuroda says that there is no need to raise interest rates. He says that Quantitative and Qualitative Monetary Easing will continue. Japan aims to bring the inflation rate to 2%.
The forex market depends on the Russia-Ukraine peace talks.