British Pound bounces up from session lows as BoE raises rates and signals further hikes

• GBP/USD bounces up to 1.3480 from session lows near 1.3450 as the BoE hikes interest rates for the first time in three years.
• The BoE raised its bank rate by 25 basis points to 4% in a unanimous vote.
• Some policymakers have assessed that one interest rate hike will not be enough.

The British Pound (GBP) has bounced from session lows against the US Dollar (USD) on Thursday, as the Bank of England hiked interest rates, as widely expected, with some policymakers calling for further monetary tightening. The GBP/USD pair holds minor daily gains at 1.3480, after having rallied about 1.3% over the last seven days.

The Bank of England’s monetary policy committee voted unanimously to raise its benchmark interest rates by 25 basis points to 4%, as widely expected. The central bank has also revised the projections of Gross Domestic Product (GDP) growth for the year 2027 up to 1.3%, from the previous 1.1%, and some members signalled further rate hikes to follow.

The focus is now on Governor Andrew Bailey’s press release, which will start in a few minutes, and is likely to give further insight into the BoE’s near-term monetary policy plans.

The British Pound had been trading higher against most peers over the last few days, as a string of upbeat UK macroeconomic data paved the path for the central bank to raise interest rates for the first time since August 2023.

Looking ahead, analysts at MUFG Bank see the market as more hawkish than the BoE: “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." With this in mind, it seems likely that a more cautious Bailey might disappoint investors and trigger some Pound reversal.