In the next 24 hours, central bank meetings in the UK and the US bring significant uncertainty to the global financial markets that should be closely monitored.

The value of the pound sterling strengthened in Wednesday's (March 22nd) European trading session thanks to a rapid rise in the latest UK inflation data. GBP/USD soared around 0.6% to reach the daily high range of 1.2297. However, several major threats could weigh on the next movement of the pound sterling.

gbpusdGBP/USD Daily chart via TradingView

The latest UK inflation data recorded a 1.1% month-over-month increase in February 2023, far exceeding the consensus estimate of only 0.2% month-over-month. The growth indicates a rapid increase compared to January's 0.4% month-over-month inflation rate. The UK's annual inflation rate also skyrocketed from 10.1% to 10.4%, moving further away from the target set by the Bank of England (BoE).

Most analysts believe such a high inflation rate will pressure the BoE to raise interest rates again in its policy meeting on Thursday. The consensus is that the BoE will raise interest rates by another 25 basis points.

"It's still a very close call, but these figures give us a bit more confidence in our forecast that the Bank will raise interest rates from 4% to 4.25% tomorrow," said Paul Dales, chief UK economist at Capital Economics. 

Not all analysts agree. A small group argues that the projection for UK inflation will decline in the coming months, so the BoE does not need to take aggressive steps amidst the current global banking instability.

"Slowing in the recent rise in new producer output prices, falls in shipping costs, and excess inventories in retailers' warehouses all suggest that core CPI will rise more slowly than last year," said Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics. "The MPC still should be able to confidently predict that CPI inflation will fall sharply over the rest of this year—perhaps even back to the 2% target—steering them away from a significant further increase in Bank Rate."

This uncertainty is hindering further gains for the pound sterling. In addition, GBP/USD is also vulnerable to the Federal Reserve's interest rate decision, which will be announced later tonight. The Fed is facing the same dilemma as the BoE: raising interest rates to control inflation or holding off on rate hikes to maintain financial stability.