On the British front, there is widespread expectation that the Bank of England will keep interest rates unchanged in its upcoming decision. Services inflation remains sticky in the UK, where there is also mixed evidence regarding economic performance, and so the BoE is faced with balancing the need for tighter policy with the threat to the economic outlook. This means the pound is particularly vulnerable to any change in forward guidance.
Overall, with the dollar benefiting from economic recovery, capital market depth and reserve-currency status, while Europe is struggling with the energy crisis and the U.K. is facing a domestic economic and financial backdrop of its own, the Fed’s upcoming rate decisions and the ECB’s measured rate increase are key developments for the dollar and euro, respectively. For the pound, the Bank of England’s decision, as well as the UK’s fiscal stance, will remain in focus.
