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Market Report : 02.11.22

Published: 02/11/2022 By ECAP

Undoubtedly the biggest event risk for the pound this week will be tomorrow’s Bank of England meeting. Markets are eyeing a 75bp rate hike from the BoE this week, though the voting split among MPC members, the rhetoric on future policy moves and the updated GDP and inflation projections will also be key for sterling. Given the BoE’s recent track record of surprising to the dovish side, we think that risks to sterling are skewed to the downside once again heading into this week’s meeting.

Today sees the conclusion of the Fed interest rate decision in the US. Analysts suggest another 75 basis point interest rate hike, the fourth in consecutive meetings, is effectively a done deal at today’s FOMC meeting. Since the last meeting in September, elevated price pressures have continued to validate the case for aggressive policy tightening, and look likely to persuade policymakers that at least one more supersized rate increase is required. There will be no ‘dot plot’ released today, so in the event that the Fed does indeed raise rates by 75bps, markets will be awaiting clues on when the Fed will revert back to 50bp hikes and when the tightening cycle will be drawn to a close.

Fed fund futures are now only pricing in around a 30% chance of another 75bp rate hike in December (from 75%), so a dovish pivot at this week’s meeting wouldn’t be a complete disaster for the dollar, though it would nonetheless likely lead to a sell-off. Should the FOMC stick to its guns, and leave the door open to another 75bp rate increase in December, then the dollar would probably be very well supported after the meeting.