Bank of England faces inflationary pressures

GBP/USD continued to fluctuate and rose to around 1.22868. Affected by market sentiment, it continued to rise. The market generally expects the Bank of England to raise interest rates by 50 basis points in December. With inflation hitting 11.1%, more than five times its target, the Bank of England is under pressure to respond aggressively to prices.

The U.S. Commodity Futures Trading Commission CFTC foreign exchange commercial position report shows that as of 2022-11-29, the (hand) long position in the British pound increased by 5,056 hands to 172,199 hands. The pound rose against the dollar this week, mainly due to the weakening of the dollar, and the Bank of England officials released hawkish tone to support the pound.

Mann, an external member of the Monetary Policy Committee, said that inflation has "intensified" into the British economy and the Bank of England must respond strongly. Her view that inflation is likely to stabilize at 4% now is at odds with the Bank of England's own forecast for inflation to fall back to 2.0% within three years. Before the epidemic, the inflation rate in the British service industry was well below 2%, and now it exceeds 3%. This is a huge change in the pace of underlying inflation.

According to market analysis, if the Monetary Policy Committee agrees with Mann's assessment, the Bank of England may raise interest rates by 75 basis points in December, raising the bank rate to 3.75%. However, if the central bank raises rates by only 50 basis points, less than expected, the pound will weaken.

The Bank of England will start selling government bonds it has bought. The sell-off will be done in a "demand-led" manner, aimed at avoiding another turmoil in the market following the historic plunge that began in late September. It could be a fresh test of confidence given that investors are already facing increased government borrowing and the Bank of England's unwinding of a large supply of pandemic-era bond holdings.

Imogen Bachra, head of UK rates strategy at NatWest Markets, said it remains to be seen how the market actually works during and after these auctions. In a market that is illiquid and still fragile, the risk to yields remains elevated as the BoE scrambles to sell its temporary holdings as quickly as possible.

"The risk to the BoE remains around its dovish bias," said Peter McCallum, senior macro strategist at Mizuho International. "Too much focus on growth risks would raise concerns that inflation may not be adequately dealt with. Inflation will remain in the double digits through the first quarter."

According to the "Times" disclosure, the Christmas Eve strike of railway workers will cost the British hotel and restaurant business 1.8 billion pounds, which is comparable to the business loss during the 2021 new crown epidemic. According to the report, the British government assessed that the strike could cost the national rail industry £260 million. Deputy Transport Minister Huw Merriman (Huw Merriman) therefore called on trade unions to stop strikes to give the hotel and restaurant business a chance to recover after the new crown epidemic.

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

The upward trend of bull power is in good shape, and the short-term bullish sentiment remains. The market as a whole is in a bullish uptrend. For upper suppression, pay attention to around 1.25351, and for low support, pay attention to around 1.19437. , as shown in the figure:

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