The British pound is trading higher again today against its US counterpart, following on from yesterday’s solid performance but some warn the currency may be in danger of a sharp reversal.
The market has now priced in a 90 percent chance that the Bank of England will lift interest rates on Thursday by 25 basis points. If on the outside chance, the BOE leaves rates on hold or delivers a dovish statement after the rate decision the pound is expected to be sold off sharply.
Many believe the rate hike will be a one-time occurrence and will not be enough to support the pound as the year comes to an end.
“The latest GDP report was firmer than expected and reiterated the view that a rate hike will be delivered” says Arindam Sandilya, a strategist at the US-based investment bank JP Morgan
“But still in combination with the overall soft level of growth, uncertainty around the erosion of slack in the economy and no signs of building domestic wage pressures, we expect the BoE to deliver a cautious message alongside the rate hike” he added.
Steven Barrow, head of currency strategy in London at Standard Bank is advising investors to hold short positions in the pound before the rate decision to prepare for the unexpected.
“I’d prefer to go into the meeting” with a short position on sterling. There is a reasonable enough chance they don’t raise rates. We’ll have to see what comes out from the statement the bank puts out.” Mr Barrow said.
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