Sterling powered upwards against the US dollar yesterday following the Bank of England decision on interest rates. Not so much because of the decision to hold rates at 5.25%, but because of the relatively hawkish comments from the governor Andrew Bailey, and because three members of the nine-member panel voted to raise rates.
The Bank of England is clearly more concerned about stubborn inflation than US central bankers, and the pound gained more than 1% on the US dollar over the course of the day, to hit its highest level since the summer.
It was a choppier day for GBP/EUR, with a rise of half a percent in 30 minutes after the BoE pronounced on rates, which soon slipped back to an even result over the day.
So yesterday was all about the central bankers. Bailey of the Bank of England and Christine Lagarde of the European Central Bank (ECB) were speaking in the wake of the US Federal Reserve’s decision on Wednesday also to hold rates. Federal Reserve chair Jerome Powell’s comments were taken to be relatively dovish, leading many analysts to predict an earlier drop in rates. Other central banks tend to follow the lead of the Fed, so to hear Andrew Bailey so clear on the need to keep rates high boosted sterling. However, even with the UK still having the highest inflation in the G7, the markets are nevertheless beginning to price UK interest rates reducing to 4% by the end of 2024.
Elsewhere on the data from yesterday, British surveyors were less pessimistic about UK property values, but 43% more surveyors believe prices are set to fall than believe they will rise.
Overnight we have had a reading for GfK Consumer Confidence in the UK, which came in at -22 for December, showing a slightly more optimistic outlook from British consumers than November’s -24.
Moreover, confidence in personal finances has recovered from -29 of a year ago to -2.
In the US, retail sales defeated low expectations to rise 0.3% between October and November, and initial jobless claims were less than expected at 202,000 – all indicative of a soft landing.
Last night the European Union failed to agree a €50bn package of aid to Ukraine, due to a veto from Hungarian prime minister Viktor Orban, an ally of President Putin. However, they, but did not block Ukraine’s next stage in applying for EU membership.
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