Rate hike buoys British Pound

The British Pound received a boost today when the Central Bank of England raised interest rates to 5.25%, which represents parity with American interest rates. The move shocked investors and traders who expected the Bank to leave rates unchanged. Risk-averse investors are now fully incentivized to move funds to Britain
since interest rate levels there are now among the most competitive in the industrialized world. Further, as the British economy still hasn’t peaked, it is possible that the Bank of England will raise rates further. Meanwhile, investors are already speculating as to when the Federal Reserve Bank will begin loosening its monetary policy, at which point it will officially be more attractive to invest in Britain. Either way, it seems the USD is in for a long and bumpy ride. The Financial Times reports:

The move sparked speculation that data next Tuesday could show December UK consumer price index inflation rising above November’s 2.7 per cent reading, since the committee would have had those figures in their possession.

Read More: Surprise rate rise boosts sterling