Affected by the Bank of England's interest rate hike expectations, the pound and the dollar remain in shock

Sterling has maintained a volatile climb against the dollar this week, mainly driven by the Bank of England's interest rate hike expectations. Fears that a tight labor market will cause wages and prices to spiral upwards should start to fade as inflation has passed its peak and labor demand continues to be weak. The Bank of England "may be nearing the end of its tightening cycle", with the benchmark interest rate likely to rise only as high as 4% before policymakers consider starting rate cuts in late 2023.

The U.S. Commodity Futures Trading Commission CFTC foreign exchange commercial position report shows that as of 2023-01-17, the (hand) long position in the British pound decreased by 7,957 hands to 130,575 hands; in order to continue to fight against inflation, the market generally expects the Bank of England The tenth consecutive rate hike in early February. Markets expect the Bank of England to raise its benchmark interest rate to a peak of 4.5% in the coming months.

Barclays fixed income strategist Moyeen Islam said the Bank of England was most likely to raise interest rates by 50 basis points in February after the latest UK inflation and job market data showed no sign of a slowdown in the economy. There was nothing in either report that was enough to give the MPC pause and see the pace of tightening slowing from current levels. The Bank of England is expected to hike rates by 50 basis points in February and 25 basis points in March and May, bringing its terminal rate to 4.50%.

The Bank of England had previously expected UK inflation to remain above 10% in the first quarter of this year before falling sharply from mid-2023 as supply chains resume and energy prices recede. It is too early for the Bank of England to declare victory in the fight against inflation, which is expected to remain at around 4.5 percent by the end of the year.

BoE Governor Bailey said there was now a more optimistic view on the prospect of lower inflation this year, noting the central bank had not pushed back on market expectations that interest rates would peak at 4.5%. There is more optimism now that we will get through the next year in an easier way. The central bank did not set a specific peak target for interest rates, but he noted that markets now expect the Bank of England to hold rates no higher than 4.5%, lower than previously thought. "I don't agree with 4.5%, but you may have noticed in December that we didn't include the comments we made in November that the market seemed to us to be pretty outrageous," Bailey said. ”

UK December seasonally adjusted retail sales: This is just another sign of the impact on UK consumers as retail sales fell well short of expectations. Sterling fell to fresh lows on the day as sales fell 1.7% from pre-pandemic levels. In detail, non-food store sales fell 2.1% month-on-month, and food store sales fell 0.3% month-on-month.

In a note, ING analysts wrote, “It is worth noting that core inflation in the services sector jumped from 6.4% to 6.8%, which should be taken into account by the Bank of England in particular, combined with yesterday's The wage data should tip the central bank towards a 50 basis point hike in February. “The market is currently pricing in an 82% chance of a 50 basis point rate hike at the next meeting, to be held on February 2. Stimulated by this expectation, the GBP/USD bulls have been eager to try in the near future.

Berenberg Bank said that the era of high interest rates should be embraced because it brings a real scenario of "real" growth in the British economy. The era of ultra-low interest rates is now truly over, as the Bank of England will almost certainly hesitate to cut rates aggressively if economic growth slows down in the future.

In the aftermath of the Great Financial Crisis, central banks responded to a situation of "no inflation" (i.e. inflation below 2.0% in developed countries), and an era of ultra-low interest rates followed. This period also coincided with a period of stagnant productivity in the UK economy, which the BoE itself admits has been linked to its monetary policy decisions in the wake of the global financial crisis. The decline in productivity is often described as a "lost decade" as workers' hourly output falls and eventually stagnates. The economy is stagnating because businesses have failed to invest in machinery and skills, two key factors in boosting worker productivity.

British police on Friday fined Prime Minister Rishi Sunak for not wearing his seat belt while recording a video from the back of a moving car. This is the second time Sunak has been punished by the police. The police found last year that Sunak had violated the epidemic prevention regulations together with then Prime Minister Johnson. Sunak became the second prime minister to break the law after Johnson.

The daily K-line chart of GBP/USD shows:

The bullish momentum moves up with high volatility, short-term bullish sentiment shrouds, the market bulls continue to climb, and there are signs of continued upward movement in the short term, the upper suppression focuses on around 1.25515, the low support focuses on around 1.21825, the MACD indicator is in the bullish zone and moves up, and the RSI indicator In the long area of high order;

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