Institution: Bank of England rate hike imminent, limited upside for the pound

⑴ Francesco Pesole of ING said in a report that the Bank of England is expected to raise interest rates as anticipated on Thursday, which will continue to support the pound after its recent rise. ⑵ He stated that, given the market has already fully priced in a further rate hike by the Bank of England in February, the threshold for the Bank to surprise the market by sending a strong signal about further tightening appears to be quite high. ⑶ This limits the pound's upward potential. ⑷ Given concerns over French debt, there is limited room for the pound to turn lower against the euro in the near term. ⑸ However, Pesole noted that since UK rate expectations are more sensitive to declining oil prices, the short-term interest rate differential supporting the pound against the US dollar is relatively weak. ⑹ Overall, market expectations for Bank of England rate hikes have been largely absorbed, and the pound faces constraints on further strengthening.