Bank of England Delivers a Dovish Hike, GBP/USD Reacts Lower
BoE Dovish Hike
The Bank of England (BoE) delivered its third rate hike in a row, raising them by 25 basis points, to 0.75%. The decision was not unanimous, since out of the nine members of the Monetary Policy Committee (MPC), one of them dissented in favor of no change.[1]
In the previous meeting in February when the bank had again hiked by 25 basis points, there were four dissenters, but they had all voted in favor of a larger half-percentage increase. [2]
Furthermore, the Committee judged that some further modest tightening in monetary policy "may be appropriate" in the coming months, marking a dovish shift from last month's "is likely to be appropriate" reference.
Higher Inflation
The main driver for the bank's tightening, is surging inflation, which climbed 5.5% year-over-year in January, well above the bank's 2% target, with next update expect in the following week. Of particular concern for the bank, has been wage inflation, with average weekly earnings having risen 4.8% 3m/y in the November-January period, from 4.3% prior, based on this week's data.
The war in Ukraine, western sanctions against Russia and the surge in energy and commodity prices put upwards pressure in inflation. Back in February and before these events unfolded, the bank had projected that inflation would peak at 7.25% in April. Today however, it upgraded its forecasts and sees Inflation rising to around 8% in 2022 Q2, and perhaps even higher later this year.
US Fed
Yesterday, the US Federal Reserve increased its interest rates for the first time since 2018 [3], with its members seeing up to six more moves within the year [4], which would mean adjustment potentially in every of the remaining meetings.
Combating high prices is the Fed's top priority, with the policy statement noting that the implications of the situation in Ukraine for the US Economy are "highly uncertain", and that they "are likely to create additional upward pressure on inflation and weigh on economic activity" in the near term.
GBP/USD
The pair had risen yesterday after the Fed decision, since the lift-off had been well telegraphed, having started today with upbeat mood. The dovish hike by the Bank of England however, pushes the British Pound to negative territory.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
References
| Retrieved 17 Mar 2022 https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/march-2022 | |
| Retrieved 17 Mar 2022 https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/february-2022 | |
| Retrieved 17 Mar 2022 https://www.federalreserve.gov/monetarypolicy/files/monetary20220316a1.pdf | |
| Retrieved 10 Apr 2026 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220316.pdf |
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