Sterling surged against all-comers yesterday following the Bank of England’s (BoE) interest rate cut. It was a day of drama for its Monetary Policy Committee (MPC) which had an unprecedented second vote after failing to reach a majority on the first.
In the end the split vote was for a 25-basis point cut to 4%, against a minority voting to hold rates.
In comments afterwards from BoE governor Andrew Bailey, he said there is “genuine uncertainty” over interest rate policy. Currency traders, however, clearly believe that that’s it for interest rate cuts for 2025 and they were unanimous in supporting sterling. The pound rallied, albeit only to its best against USD and EUR for a week or so.
Elsewhere on the wires, Germany’s Balance of Trade surplus shrank to €14.9bn, primarily due to a 2.1% decrease in exports to the USA and a surge in imports. But it’s all been quiet for the euro lately.
If the BoE’s interest rate cut does cause inflation to rise even beyond the 4% predicted for September it will be another headache for the chancellor who will need to find extra money for pensions and other benefits that track inflation. The pension triple lock is calculated from September’s inflation figure and is also in place for those who retire to European countries.
As well as the issue of food inflation accelerating to 4%, another price still rising is house prices, with the Halifax reporting yesterday a 0.4% rise in the past month. An improvement in prices may be being fuelled by cheaper mortgages, with two-year fixed deals now cheaper than five-year deals for the first time since the Liz Truss mini-budget.
Back to exchange rates and despite there being no more interest rate decisions from the BoE or US Federal Reserve for several weeks, there will still be plenty of data to move the currency markets. That all starts on Tuesday with unemployment and earnings data for sterling, Germany’s ZEW Economic Sentiment Index for the euro and US inflation data for the dollar.
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