Analysts predict the pound will fall against the euro and the dollar on any increase of less than 50 basis points from the BoE.

Analysts believe that in order for the Pound Sterling to gain support, the Bank of England would need to hike the Bank Rate by 50 basis points today.

The comments come in response to news on Tuesday that UK core inflation rates hit a new high and headline CPI inflation outperformed forecasts for the fourth consecutive month, raising questions about the Bank of England's failure to acknowledge the severity of the country's inflation issue.

In contrast to the current trend of 25-bp increases, a 50-bp increase in interest rates would reflect a shift in pace and a rising commitment which prevents inflation expectations from becoming so deeply ingrained that they end up falling short of the long-term aim of 2.0%.

Money market statistics indicated that after the midweek inflation report, investors moved to price in an extra 160 basis points worth of rate rises overall, up from 140 basis points yesterday.

Markets predict a 60% likelihood of a rate increase of 25 basis points for today's meeting, but a 40% possibility of a return to a bigger step shift of 50 basis points. According to certain analyses of money market signals, the likelihood of a 50 bp jump is now up to 50%.

According to Neil Shearing, Group Chief Economist at Capital Economics, "We now anticipate the MPC to raise interest rates by 50bps to 5.00% at tomorrow's meeting."

Normally, above-consensus inflation figures would increase UK bond rates and increase the value of the pound's value, but instead, both yields and the currency traded down, indicating that the market may already be fully aware of the relationship between UK inflation and the Bank of England and that the trade has reached its saturation point.

Any indication that the Bank may be losing control might potentially cause the pound to fall sharply.

The Bank has no simple alternatives, and the currency market is still confused about how to play the currency in the current environment. There are a lot of variable factors to take into account before today's policy announcement, but one thing is clear: there are no easy solutions.

Volatility is therefore probable, but as of right now, it appears that anything less than 50 bp would be insufficient to maintain the pound, which is still the market leader heading into the policy announcement for 2023.

(Sources: investing.com, poundsterlinglive.com)