Sterling dropped to its weakest level versus the euro this year as money markets showed traders pushed back expectations for a rate hike to November 2018 from August 2018 prior to the decision. The BOE’s Monetary Policy Committee voted 6-2 in favor of keeping rates unchanged at a record-low 0.25 percent. The central bank lowered its economic growth projections to 1.7 percent this year from 1.9 percent, Bloomberg reported.
“The drop in sterling may suggest that some investors were betting on a surprise hawkishness from the meeting,” said Credit Agricole SA strategist Valentin Marinov in emailed comments. “The markets will continue to bet on a hike in 2H18, which could leave GBP back at square one.”
The U.K. currency has rallied since the central bank’s previous meeting in June, when three of the MPC’s members voted in favor of a rate hike. Even so, the economic backdrop is showing signs of deterioration, with growth stuttering and wages struggling to match higher levels of pound-induced inflation.
The pound earlier climbed to its highest level versus the dollar since September after IHS Markit’s services Purchasing Managers Index, which measures the largest part of the economy, rose to 53.8 last month from 53.4 in June. The gauge was above the key 50 level that divides expansion from contraction and beat analysts’ median forecast of 53.6.
- GBP/USD falls 0.4% to 1.3167 as of 12:39 p.m. in London, after rising to 1.3267, the highest since Sept. 15
- Support at 1.3159-52
- EUR/GBP climbs 0.4% to 0.8997, having reached 0.9013, the most since Nov. 9
- Yield on 10-year gilt falls 4bps to 1.20%
- Read analysis of the Bank of England decision in our TOPLive blog here