Mitsubishi UFJ Bank: If the Bank of England and the European Central Bank aggressively raise interest rates, the British Pound and Euro may only rise temporarily.

In a report from MUFG Bank, Lee Hardman stated that if the Bank of England and the European Central Bank raise interest rates more aggressively than the market expects, the British pound and the euro may struggle to maintain any gains. While faster rate hikes could provide some short-term support for the pound and the euro, "if tighter monetary policy and higher energy prices lead to a more severe economic slowdown/recession in the eurozone, these gains will ultimately prove to be temporary." The softening growth momentum indicated by the purchasing managers' surveys released on Tuesday in the UK and the eurozone may dampen expectations of more aggressive rate hikes. However, he noted that if inflation shocks prove to be more persistent, the Bank of England and the European Central Bank may still raise rates.