Could the Bank of England surprise the markets again this week?

The Pound has managed to hold onto much of its recent gains against the Euro recently, as it continues to trade towards the top end of its annual range.

Last month increasing expectations of further interest rate hikes pushed the Pound to a high of 1.1750, and at the time of writing the GBP/EUR pair are trading within 0.75 cents of this 11-month high.

This week, the Bank of England (BoE) is expected to raise interest rates to the highest level in 15-years.

The general expectation is for a hike of 0.25% which would take the base rate of interest up to 5.25%. Financial markets will be following the lunchtime update on Thursday closely though, as back on the 22^nd of June when the BoE last hiked interest rates, they sprung a surprise and opted to hike the rate by 0.5% which was above market expectations.

City traders have outlined a 75% chance of 0.25% and a 25% chance of 0.5%. If the Bank of England spring another surprise it could result in a market reaction so if you’re following the Pound closely it’s worth being aware of this economic data release.

A greater hike than expected could push GBP higher, as this would be a more bullish move than expected.

The commentary from the BoE that comes after the policy update is also important, as up until now the expectation for rate hikes is set to peak around 6% but last months drop in inflation could result in a lower peak.

Aside from this monetary policy update there will also be second readings for PMI releases this week for Manufacturing, Construction and Services figures. No changes are expected from the initial readings so if the readers remain the same, I think Thursday’s BoE update will be the key release this week for GBP exchange rates.

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