Wealth Manager - the site for professional investment managers

Register for full access to Citywire’s Fund Manager database, news and analysis. Registration is free and only takes a minute.

Hawkish BoE rate outlook rockets pound toward $1.70

2 comments
Hawkish BoE rate outlook rockets pound toward $1.70

Sterling leapt against the dollar this morning following the release of Bank of England minutes which have recalibrated expectations of the schedule for UK rate rises.

The GBP/USD cross briefly broke back above $1.69, recovering much of its losses this month following the release of an unexpectedly dovish Inflation Report.

Having risen from $1.685 the hit $1.6901 before falling back to $1.688, also encouraged by strong retail spending figures. Despite quickly topping out, the strength of the move suggests that the pound could make another try for $1.70, a value last seen in 2008.     

‘The pound’s spike this morning suggests investors are finding a very different policy outlook based on today’s meeting minutes,’ said Nawaz Ali, analyst at Western Union Business Solutions.

‘If, as expected, interest rates will rise in small increments when the time comes, then the first hike may need to come sooner. This was just one of the key messages which traders latched onto this morning, pushing the pound up to 1.2341 against the euro.’

Traders were responding to the suggestion that at least two member of the BoE monetary policy committee could soon be prepared to vote for an increase in the base rate.

While the vote to hold was unanimous the minutes stated that ‘for some members the monetary policy decision was becoming more balanced,’ and the Inflation Report had caused some dissent.

Market expectations for a first rate hike had previously pencilled it in within the second quarter of 2015.

‘This has cast serious doubt over whether the MPC will wait that long,’ said Craig Erlam, analyst at currency trading platform Alpari. ‘Especially following yesterday’s inflation reading which showed the rate rising to 1.8%, while the core number was in line with the central bank’s target of 2%.

‘While this doesn’t add pressure to the MPC to hike rates quite yet, as the economy improves and wages rise, so will inflation. A lower rate, which is appeared to be where they we were headed, would have bought the MPC more time.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Inside ETFs: Why the US bull-run still has legs

Inside ETFs: Why the US bull-run still has legs

Global equities suffered a sharp sell-off in the third quarter but exchange traded fund investors are continuing to back the US to outperform in 2015

Play Paul Niven: I won't rip up the Foreign & Colonial Trust history book

Paul Niven: I won't rip up the Foreign & Colonial Trust history book

The newly appointed manager of the Foreign & Colonial trust talks about his plans for UK's oldest investment company.

Play Dangerous daisy chains, Black Friday blues and Uber valuations

Dangerous daisy chains, Black Friday blues and Uber valuations

This week’s Investment Pulse looks at the domino effect in European banks, America’s disappointing Black Friday and how much Uber is really worth.

Your Business: Cover Star Club

Manchester wealth firm hires Coutts director for London launch

Manchester wealth firm hires Coutts director for London launch

Former Coutts director Tony Robinson has joined Chartered Wealth Management to head the company’s newly opened London office.

Wealth Manager on Twitter