More rate hikes may boost pound

13 September, 2018

The British pound has been well supported over the last few days as speculation that a rebellion within against Prime Minister May’s conservative party seems to be waning which may save the PM from being toppled and some also believe that the market is underestimating the chances of further rate hikes from the Bank of England.

A number of Brexit supporting backbenchers have now distanced themselves from the ultra-Eurosceptic European Research Group which is a group of MP’s who are against Theresa May’s plan regarding Brexit and believe that no deal is better than a bad deal.

The reason for the lack of support is rumored to be the threat that if May is toppled, a new election May be called and the chances of the current government losing power to the labor party is a huge risk.

This is seen as good news for the pound because with political stability, the chances of a deal on Brexit significantly grows and the UK economy can move forward,

"Our main scenario is that UK will get a transitional agreement, which explains our forecast for a stronger Pound towards the end of this year. This seems to have gained some support recently," says a foreign exchange strategy note from Scandanavian banking giant S.E.B.

Some analysts are also predicting that the chances of further rate hikes from the BOE are being grossly underestimated by the financial markets considering recent strong economic data and although no rate rises are expected at the upcoming interest rate decision form the central Bank, the following monetary statement mat signal their willingness to do so if positive economic data keeps rolling in.

“The stronger data flow supports the BOE’s decision to tighten policy last month, and could prompt the BOE to maintain a hawkish signal at this week’s policy meeting,” said Lee Hardman, currency strategist at MUFG.

“The pound has failed to reflect the stronger U.K. data flow and higher U.K. rates in recent months, which creates scope for catch-up strength if Brexit risks ease.” He added.

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