After a disappointing week Sterling was able to rally against the Euro and Dollar yesterday as the Bank of England said the case for higher interest rates “appeared to have strengthened”. The UK central bank voted unanimously to leave its “main interest rate unchanged at a record low of 0.1% and opted to stick to its asset purchase target of £875B”. Despite this move, the case for policy tightening gained momentum as both Deputy Governor Dave Ramsden and Michael Saunders voted for an early end to the BoE’s program of government bond purchases.
The BoE also revised down growth forecasts for Q3 at Thursday’s meeting. The bank is now expecting 2.1% of GDP growth, compared to the 2.9% reading given in August’s report. The downgrade was said to be a direct consequence of “the emergence of some supply constraints on output”. In regard to inflation, the BoE warned British consumers that prices were likely to reach “slightly above” 4% this year, due to the “deepening energy price shock”. With 4% being double the Banks target level, the BoE said, “the material rise in spot and forward wholesale gas prices since the August Report represents an upside risk to the MPC’s inflation projection from April 2022”.
GBPUSD opened on Thursday at 1.3642 but quickly made upside gains in the session. Cable finally closed at an impressive 1.3744.
GBPEUR also made solid gains yesterday. The pair started subtly at 1.1651 and was able to go beyond the 1.17 handle on the day. As markets began to quiet down, the pair ended the session at 1.1698.
EURUSD also enjoyed some upside in yesterday’s session. After starting the day at 1.1709, the pair went on to close just below the 1.1750 mark at 1.1749.
