1.3500 in sight as British Pound rebounds from session lows following BoE rate hike

• 1.3480 marks the GBP/USD rebound. The pair recovers from session lows near 1.3450 following the BoE’s first interest rate increase in three years.
• 25 basis points takes the BoE’s bank rate to 4%, with all policymakers backing the increase.
• A single rate increase will not suffice, according to some policymakers’ assessments.
  

GBP/USD trades at 1.3480 with a small daily gain. The British Pound (GBP) recovered from Thursday’s session lows against the US Dollar (USD) after the Bank of England delivered a widely anticipated rate increase. Some policymakers called for additional monetary tightening. The pair has advanced about 1.3% over the last seven days.

A unanimous vote by the Bank of England’s monetary policy committee lifted its benchmark interest rate by 25 basis points to 4%, in line with broad expectations. Alongside the decision, the central bank upgraded its 2027 Gross Domestic Product (GDP) growth forecast from 1.1% to 1.3%. Some committee members also indicated that further rate increases would follow.

Attention now turns to Governor Andrew Bailey’s press release, due to begin in a few minutes. It is likely to offer more detail on the BoE’s monetary policy plans for the near term.

A run of positive UK macroeconomic releases had set the stage for the central bank’s first rate increase since August 2023. Against that backdrop, Sterling had strengthened against most other currencies over the past few days.

MUFG Bank analysts consider market expectations more hawkish than the BoE’s outlook: “We expect the BoE to signal that further tightening is likely to be required but not as much as currently priced in. The UK rate market had been pricing in 4-5 hikes, although that has been scaled back as the price of oil has dropped sharply this week." A more cautious message from Bailey therefore seems likely to disappoint investors and prompt a partial reversal in the Pound.