Pound to Put Squeeze on Bears as BoE Unlikely to Sit on Rate-Hike Fence

The pound started the week on the front foot Monday, and the currency could be preparing to put the squeeze on the bears in the coming weeks as the Bank of England’s surprise unchanged rate decision last week isn’t expected to be repeated at the December meeting.

GBP/USD rose 0.51%, to $1.356.

“In the last two months of the year, we see the prospect of imminent tightening (we think the 15bp rate increase should come in December) to help GBP recover its post-BoE losses,” ING said in a note.

The pound suffered a straight-second week of losses last week after the Bank of England confounded market expectations by keeping its benchmark rate on hold.

Ahead of meeting on Nov.4, economists and traders alike had expected the BoE to raise rates for the first time in three years.  

Data from the Commodity Futures Trading Commission showed that speculators added their net long GBP position to 15,047 contracts in the week to Nov. 2.

Following the surprise unchanged rate decision, traders rushed to unwind their long positions, but may likely pay the price if those bets swing bearish as the Bank of England is expected to hike rates at its December meeting.

“We expect, anyway, to see a short-squeeze in the pound in the next CFTC report as the 4 November Bank of England meeting saw policymakers surprise markets by holding the policy rate unchanged (a 15bp hike was priced in), which triggered a drop in GBP,” ING added.

BoE governor Andrew Bailey continued to tout a potential liftoff in rates on Monday, insisting the central bank would act to curb inflation pressures.

“What we’re concerned about … is once you start to get an increase in inflation of this sort we want to stop it becoming generalised in the economy,” Bailey said.


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