Sterling traded either side of flat near 1.2070 on Thursday after the ECB shrugged off recent market turmoil and raised rates by 50bp as it had promised, which could support GBP/USD as the BoE prepares for its rate announcement on March 23.
Sterling's near-term fate rests squarely on the BoE.
IRPR on Eikon is indicating a near-50% chance of either a 25bp hike or no rate change at all next week.
With UK inflation at 10.1%, the BoE may be forced to stay on pace with other major central banks in hiking rates, despite financial sector ructions and the well advertised dovishness of some MPC members.
With UK banks unaffected so far by global bank sector uncertainties, the BoE have more room in the short-term to follow the ECB combating inflation.
A BoE 25bp hike on March 23 would address UK inflation while providing time to measure the extent of current financial unrest, and keep GBP/USD anchored near recent highs by 1.22.
By contrast, a BoE halt or rate cut could damage UK inflation credibility and likely push GBP/USD back toward 2023 lows at 1.1805, and November 2022 lows by 1.1650.
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