Therefore, the differences in approach from the Fed, the BoE and other major central banks means volatility in the FX markets, which is a good thing for investors – indeed, as some countries move faster than others on interest rate changes, traders should monitor currency divergence closely.
Even as inflation dips, it is clear that there are a growing number of factors for the BoE to be mindful of ahead of their meeting on Thursday. As such, while inflation continues to be a priority for the MPC, the potential weakness in the banking system may be too much of a threat to the long-term health of the economy if they were to hike rates again.
Therefore, if inflation continues to cool on Wednesday, a no change decision on Thursday would be an increasingly likely outcome.
Giles Coghlan is chief market analyst at HYCM
