Pound Sterling Drops against Euro and Dollar After Bank of England Shifts Down a Gear
PoundSterlingLIVE
Published Aug 03, 2023 12:26
Updated Aug 03, 2023 12:41
Pound Sterling Drops against Euro and Dollar After Bank of England Shifts Down a Gear
PoundSterlingLIVE - The British Pound tracked bond yields and fell further against the Euro and Dollar after the Bank of England raised interest rates by 25 basis points, representing a downshift from the 50bp hike delivered in June.
The declines suggest an initial reaction by investors to the Bank's latest decision and guidance was to lower expectations for the peak in UK interest rates as they start to anticipate a potential pause to the hiking cycle before 2023 ends.
And of course, the Pound traditionally falls as an immediate reaction to the Bank of England's decisions in the current hiking cycle, therefore the declines are in keeping with a predictable market reaction function that has become something of a turkey shoot for traders.
Nevertheless, there is a great deal of information for markets to assess given the release of slightly altered guidance and new economic forecasts, which suggests the coming days could yet see a recovery shape up.
For one, it does appear that the Bank will hike interest rates again in September given the Monetary Policy Committee vote breakdown erred to the 'hawkish' side in that two members voted for a 50bp hike.
Only one member voted for a 25bp move; if more members voted for a hold, we would sense that the Monetary Policy Committee (MPC) was moving towards a pause.
The sell-off in the Pound nevertheless reflects some easing in expectations for a peak in Bank Rate, with two-year gilts dropping as the Bank acknowledges "the current monetary policy stance is restrictive" owing to "the significant increase in Bank Rate since the start of this tightening cycle."
This suggests the Bank sees the cycle is approaching the point where a pause is signalled.
The Pound to Euro exchange rate fell to 1.1580 in the minutes following the decision, while the Pound to Dollar exchange rate extended its decline to 1.2668.
An original version of this article can be viewed at Pound Sterling Live
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Written By: PoundSterlingLIVE
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