The worries are mounting for the UK economy amid the latest fuel shortage and energy crisis, bringing about risks of stagflation. That means we might actually get to see the BOE hike rates sooner rather than later as we approach year-end.
Money markets have now moved to price in a BOE rate move to 0.50% in June next year as compared to August pricing last week. While that may seem supportive for the pound, the reasoning for such a hike in rates is less encouraging.
With UK consumer inflation already running extremely hot last month, the pressure is mounting for the BOE to take some form of policy action to prevent a major hit to the economy towards the final quarter of the year.
As such, the latest energy crisis isn't helping whatsoever.
EUR/GBP has also jumped up from 0.8530 to 0.8590 during the session and going back to cable, a daily break below 1.3600 will set the stage for a retest of key support around 1.3566-71 as we navigate through the week.
A break below that support region will likely exacerbate a further drop in the pair with little standing in the way of a sharper drop towards 1.3200 arguably.
The fact that we're also starting to see a "death cross" form on the key daily moving averages also isn't too promising - the first crossover since September last year.
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