Trading
Sterling stumbles after rollercoaster ride to 2-year high vs euro
Sterling stumbles after rollercoaster ride to 2-year high vs euro
Published by Jessica Weisman-Pitts
Posted on February 3, 2022
Global Banking and Finance Review
Company
Published by Jessica Weisman-Pitts
Posted on February 3, 2022
By Joice Alves
LONDON (Reuters) -Sterling fell sharply against the euro after jumping to a two-year high on Thursday as a rate hike from BOE-BANKS-e57d1808-2900-42bd-832f-d8f2baa8f262>the Bank of England failed to keep sterling afloat after the European Central Bank meeting.
Sterling jumped 0.5% versus the euro after the BoE raised its benchmark interest rate to 0.5% to contain rising inflation. But a couple of hours later, the pound fell to its lowest level in nine days versus the single currency after ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB President Christine Lagarde spoke.
Speaking after the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB kept its policy unchanged, Lagarde acknowledged that euro zone inflation was running hotter than expected, adding that raising interest rates this year was “very unlikely” but left the door open for further assessment.
She had previously argued that inflation would soon abate without intervention.
“It was less than surprising that the GBP bounce proved short-lived. With the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB underlining that the situation has changed, allowing the market to further accelerate euro area rate expectations,” said Jeremy Stretch, head of G10 FX strategy at CIBC.
Sterling fell 0.6% versus the strengthening euro to 83.78 pence by 1505 GMT. At 1212 GMT, it had touched a two-year high of 82.85 pence versus the euro after the majority of the nine members of the Monetary Policy Committee voted for a 0.25 percentage point increase.
Four of the nine MPC members wanted to raise interest rates by half a percentage point to 0.75%.
Traders interpreted the split as a hawkish skew from the BoE. But some flagged the markets’ forecast for a 1.50% bank rate by early next year was exaggerated.
“Although we expect the BoE to hike rates in May, in view of the drag on incomes from rising energy and food inflation, we see the market’s expectations regarding BoE rate hikes this year to be overdone,” said Jane Foley, head of FX Strategy at Rabobank in London.
In a busy day for the UK markets, British finance minister Rishi Sunak announced measures to help households cope with soaring energy bills, after Britain’s energy regulator said consumer bills would see a record leap.
Versus the dollar , the pound rose 0.15% to $1.3591, after hitting its highest level against the greenback since Jan. 20, as the dollar was dented by a stock market tumble and the euro surge.
(Reporting by Joice Alves; Editing by Angus MacSwan, Nick Macfie and Ed Osmond)
By Joice Alves
LONDON (Reuters) -Sterling fell sharply against the euro after jumping to a two-year high on Thursday as a rate hike from BOE-BANKS-e57d1808-2900-42bd-832f-d8f2baa8f262>the Bank of England failed to keep sterling afloat after the European Central Bank meeting.
Sterling jumped 0.5% versus the euro after the BoE raised its benchmark interest rate to 0.5% to contain rising inflation. But a couple of hours later, the pound fell to its lowest level in nine days versus the single currency after ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB President Christine Lagarde spoke.
Speaking after the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB kept its policy unchanged, Lagarde acknowledged that euro zone inflation was running hotter than expected, adding that raising interest rates this year was “very unlikely” but left the door open for further assessment.
She had previously argued that inflation would soon abate without intervention.
“It was less than surprising that the GBP bounce proved short-lived. With the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB underlining that the situation has changed, allowing the market to further accelerate euro area rate expectations,” said Jeremy Stretch, head of G10 FX strategy at CIBC.
Sterling fell 0.6% versus the strengthening euro to 83.78 pence by 1505 GMT. At 1212 GMT, it had touched a two-year high of 82.85 pence versus the euro after the majority of the nine members of the Monetary Policy Committee voted for a 0.25 percentage point increase.
Four of the nine MPC members wanted to raise interest rates by half a percentage point to 0.75%.
Traders interpreted the split as a hawkish skew from the BoE. But some flagged the markets’ forecast for a 1.50% bank rate by early next year was exaggerated.
“Although we expect the BoE to hike rates in May, in view of the drag on incomes from rising energy and food inflation, we see the market’s expectations regarding BoE rate hikes this year to be overdone,” said Jane Foley, head of FX Strategy at Rabobank in London.
In a busy day for the UK markets, British finance minister Rishi Sunak announced measures to help households cope with soaring energy bills, after Britain’s energy regulator said consumer bills would see a record leap.
Versus the dollar , the pound rose 0.15% to $1.3591, after hitting its highest level against the greenback since Jan. 20, as the dollar was dented by a stock market tumble and the euro surge.
(Reporting by Joice Alves; Editing by Angus MacSwan, Nick Macfie and Ed Osmond)
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