Yesterday, interest rate decisions from both the Bank of England (BoE) and European Central Bank (ECB) caused something of a bloodbath for sterling, which lost between 1.5 and 2% against the euro and US dollar.
No recovery for the pound this morning either, just a less steep angle of decline. It’s worth bearing in mind, however, that this returns GBP/USD to early December’s levels, but it remains well up on mid-November and a little stronger against the euro.
There has been some debate as to whether this was a hawkish or dovish interest rate rise from the BoE’s Monetary Policy Committee (MPC), but a split decision like yesterday’s, with six of the nine-member panel voting for a 50 basis point rise to 3.50%, but two voting for no rise at all and one for a 75 basis point rise, is generally regarded unfavourably by the currency markets which reward unanimity.
Either way, UK interest rates are at their highest level for 14 years, in a week where we also had inflation recorded slightly lower at 10.7%, unemployment slightly higher at 3.7% and GDP better than expected with a rise of 0.5% in October.
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Back to this morning, and a hectic week for the Office for National Statistics, central bankers and currency traders continued with disappointment for retailers in the final run up to Christmas. GfK Consumer Confidence was still at near-historic lows of -42 (not as low as in the autumn, but the lowest sustained level for 50 years) and retail sales unexpectedly dropped by 0.4% in November (a similar pattern to the USA), despite Black Friday.
Elsewhere in the news, as widely predicted, ending China’s ‘zero-Covid’ policy has resulted in a wave of new cases through an under-vaccinated Beijing.
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