Pound Setting Up to Challenge 2021 Highs, BofA Says By Investing.com

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Pound Setting Up to Challenge 2021 Highs, BofA Says

Currencies Jan 19, 2022 03:50PM ET

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Pound Setting Up to Challenge 2021 Highs, BofA Says

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By Yasin Ebrahim

Investing.com – The pound has racked up gains against the dollar since bottoming in early December, and now is setting up to challenge last year’s high, Bank of America said in a note.

GBP/USD was up 0.2% to $1.3624.

“GBP/USD is breaking out of a bull flag pattern with a bullish MACD cross. We think GBP/USD has medium term upside while above the 1.32s which can equate to a rally above the 2021 highs," BofA said.

Beyond the technical indicators, sentiment on the pound has been supported by ongoing expectations that the Bank of England may be forced to hike rates again in February to tackle surging inflation.

Data on Wednesday showed U.K. inflation jumped to 30-year high of 5.4% on broad-based prices increases.

"[D]espite the latest wave of coronavirus, inflation in restaurants and hotels jumped 0.8ppt to 6.0%Y/Y, contributing to an increase of 0.1ppt in services inflation to 3.4%Y/Y, the highest since 2013," Daiwa Capital Markets said.

“[T]he expected near-term profiles for economic activity (firm enough) and inflation (very high) are likely to persuade the BoE's MPC to raise rates by a further 25bps in February to 0.5%,” it added.

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