The pound is strong as the market waits for an interest rate hike

Monday brings a slight pullback GBP / USD, after they had been growing dynamically for the last 4 days, breaking above the peak from the first half of May (1,2679) and setting new over-year highs. At noon, the pound traded at $1,2809, down from $1,28202 at the end of the day on Friday and from $1,2512 a week earlier.

GBP/USD daily chart. Source: Tickmill

The problem with inflation on the islands is still ongoing

The last wave of strengthening of the pound is, on the one hand, expectations for further interest rate increases by Bank of England. The next one will take place on Thursday (June 22). The market consensus assumes an increase in interest rates by 25 basis points, and as a result an increase in the main rate to 4,75 percent.

And this is probably not the last such increase by the Bank of England. Inflation in the UK is still far too high. Investors will know its latest reading before the decision of the Bank of England, because on Wednesday, June 21. Economists estimate that in May CPI inflation will fall to 8,5 percent. from 8,7 percent y/y in April, and core CPI inflation will remain at 6,8%. Y/Y.

The second reason for the recent increases in GBP/USD is the lack of faith in two interest rate increases in the US, which was signaled at the last FOMC meeting by the so-called dot chart. Investors are convinced that despite the strongly hawkish bias, the Fed has already ended the cycle of raising interest rates.