FX.co ★ What will be the reaction of the pound to the Bank of England and the ECB rate hikes?

Today, the GBPUSD pair fell to its lowest level since September as investors await policy decisions from the Bank of England and the European Central Bank.

The Bank of England is expected to raise its key interest rate by 50 basis points, marking the 10th consecutive rate hike as it continues to fight soaring inflation. But there is a possibility that the bank will raise rates a little less: by a quarter of a point.

The 50 basis point change, largely driven by the money markets, will raise the bank rate to 4%, the highest level since 2008.

The focus will be on the division of votes among politicians after the three-way split in December, when two rate-setters chose to keep the bank rate at its level, then one member favored a larger increase of 75 basis points, and six voted for 50 basis points.

If the rate is raised to 25 bps, this will put pressure on the pound.

And if the Bank of England raises by 50 basis points, it is unlikely to be such a hawkish signal as the ECB.

The ECB is likely to raise its interest rates by 50 basis points when it announces its policy decision at 13:15 UTC, and most likely, the members of the bank will announce further rate hikes at future meetings.

The euro rose 0.4% against the pound to 89.18 pence, the strongest level against the pound since September last year.

The pound fell 0.3% against the dollar to $1.23314.

On Wednesday, the Federal Reserve raised its key interest rate by 25 basis points, down from the 50 basis point increase at the last meeting. Fed Chairman Jerome Powell said more rate hikes are likely to come.

The Bank of England will also update its growth and inflation forecasts, with most economists now expecting a smaller decline than previous estimates.