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Sterling slips as dollar stands tall
Global Banking & Finance Review®
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By Tom Wilson
LONDON (Reuters) – Sterling slipped on Friday against a strengthening U.S. dollar, giving up gains made a day earlier after the Bank of England raised interest rates.
The pound fell as much as 0.5% against the dollar to $1.2290, off from a one-week high of $1.2405 touched a day earlier. It was last at $1.23015.
The dollar index, which measures the currency against six peers including the yen, rose 0.23% to 104.12, with the dollar gaining against the Japanese yen after the Bank of Japan kept its ultra-easy monetary policy unchanged.
Against the euro, sterling traded flat at 85.46 pence, regaining some ground after losing around 0.3%.
“It’s very much a dollar move,” said Michael Hewson, chief market analyst at CMC Markets, of sterling’s performance.
The pound had on Thursday gained 1.4% versus the dollar, buoyed by the Bank of England’s 0.25% interest rate rise.
The increase surprised some investors who had expected a more aggressive move to douse soaring inflation in Britain, though most predicted it would support the pound with further rate hikes likely through the year.
“The BoE’s (comparatively low) 25 basis point speed is in principle not a GBP disadvantage,” analysts at Commerzbank wrote in a note. “Because it formulated its will to hike further yesterday in a marginally more convincing manner, the pound was able to rise correctly.”
(Reporting by Tom Wilson; Editing by Emelia Sithole-Matarise)
A currency index measures the value of a currency against a basket of other currencies. It helps investors gauge the strength or weakness of a currency in the foreign exchange market.
An interest rate is the amount charged by a lender to a borrower for the use of assets, expressed as a percentage of the principal. It can influence economic activity and inflation.
Foreign currency refers to any currency other than the domestic currency of a country. It is used in international transactions and can impact exchange rates and trade balances.
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, managing monetary policy, and maintaining financial stability in the UK economy.
Currency hedging is a financial strategy used to reduce the risk of adverse price movements in foreign exchange. It involves taking offsetting positions in currency pairs to protect against fluctuations.
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