GBP tumbles as Bank of England hikes rates in likely one-off move

After 10 years of cuts and freezes, the Bank of England (BoE) finally hiked interest rates yesterday. The pound was not happy, however.

Sterling is on mixed form this morning. GBP/EUR is edging higher at €1.1202, whilst GBP/USD is stuck around opening levels at US$1.3048. GBP/AUD is making a bold recovery, trending around A$1.6996, but GBP/NZD has slipped lower to NZ$1.8837. GBP/CAD is inching higher at C$1.6731.

With the next interest rate hike seemingly a long way away, markets will likely turn their attention back to economic data. See which release could help the pound to recover today below…

What’s been happening?

The pound was weak ahead of the Bank of England (BoE) announcements yesterday, and tumbled once they were made.

Interest rates were indeed hiked from 0.25% to 0.5% as expected, but the accompanying commentary suggested that this would be a one-off occurrence, rather than the beginning of a ‘tightening cycle’.

This disappointment saw Sterling tumble against its major peers, with markets disheartened to see the Bank of England was expecting to hike rates by only a total of half a percent during the next three years.

The euro was on mixed form yesterday, trading as one of the better performing safe currencies but losing out against its risky peers. The latest Eurozone manufacturing PMI showed that sector activity had hit an 18-month high during October, with the Italian and Spanish readings also on strong form.

The US dollar was largely softening yesterday in response to Wednesday evening’s monetary policy announcements from the Federal Reserve. The central bank made no comments to suggest that an interest rate hike isn’t planned for December, but similarly markets were given no particular reason to buy into USD, as the policy statement failed to give a solid indication of the Fed’s intent to raise borrowing costs.

What's coming up?

With little reason to think that UK monetary policy will change any time soon, markets are likely to turn their attention back to economic data and the impact of Brexit.

If today’s October services PMI prints strongly the pound could recover some of yesterday’s losses. If it weakens, Sterling will be in real trouble.

There is nothing on the Eurozone data calendar of note during today’s session, but the US will release the highly influential non-farm payrolls report for October. The report is expected to show a notable rise in job creation after the sector was disrupted during September by tropical storms.

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Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.