Pound recovers after BoE rate hike

Written on 08/04/2023
Team UCapital 24

The pound was stronger on Friday afternoon, staging a recovery after slumping on Thursday in the wake of a 25 basis point interest rate hike from the Bank of England.

The pound was quoted at USD1.2747 on Friday afternoon in London, up from USD1.2654 on Thursday afternoon.

At the time of the London equities close on Wednesday, sterling was quoted at USD1.2707, meaning the pound has fully recovered and is now stronger than it was prior to the decision.

Against the euro, sterling was trading at EUR1.1594, up a touch from EUR1.1592 on Thursday.

The BoE on Thursday lifted the benchmark bank rate by 25 basis points to 5.25% from 5.00% previously, with a majority of Monetary Policy Committee members voting for the hike.

In a press conference following the interest rate decision, Governor Andrew Bailey offered little about the path for UK interest rates.

When asked about the soonest he believes rates can be cut, he said will not "make a prediction about that".

"It's far too soon to speculate on when we might see a cut," Bailey said.

Francesco Pesole said ING's economics team's view is that another 25 basis point increase to 5.50% in September is "likely", but added that may be the end of the cycle as inflationary pressures abate.

"This leaves room for a rebound in EURGBP to the 0.87 to 0.88 area by year-end, although our view that the dollar will decline towards the end of the year means cable [GBPUSD] can still trade above 1.30 in the fourth quarter," he said.

The dollar was weaker on Friday afternoon, struggling in the wake of fresh data that revealed the US economy added fewer jobs than expected last month.

The euro was changing hands at USD1.1013 on Friday afternoon London time, higher against USD1.0916 at the same time on Thursday.

According to data from the Bureau of Labor Statistics, nonfarm payrolls rose by 187,000 in July, below the FXStreet cited consensus, which had chalked in a 200,000 increase, but up from 185,000 in June.

June's reading was downwardly revised from 209,000.

Growth in pay was unmoved. Average hourly earnings rose 4.4% on-year in July, the same pace of growth as in June. Earnings rose 0.4% in July from June. They had also risen 0.4% in June from May.

David Henry, investment manager at Quilter Cheviot, said Friday's data shows that the US jobs market continues to remain "remarkably resilient" in the face of the highest US Federal Reserve funds rate "in a generation."

Fed Chair Jerome Powell last week Wednesday said the US labour market "remains very tight" though he noted the pace of job growth eased from earlier in the year.

Versus the Australian dollar, the US currency was priced at AUD1.5167, down from AUD1.5318. Against the Canadian loonie, the dollar traded at CAD1.3354, unchanged from CAD1.3354 on Thursday.

Against the Swiss franc, the dollar was priced at CHF0.8715, down from CHF0.8769. Versus the Japanese yen, the dollar was trading at JPY142.03 in London, lower against JPY142.77.