Sterling Slides ahead of BoE Policy Decision
The British pound weakened below $1.13 Thursday, as investors rushed to the US dollar due to a more hawkish Federal Reserve’s stance while the market awaiting the Bank of England’s policy decision due later today.
US policymakers on Wednesday hiked interest rates by 75 bps as widely expected, with Fed Chair Powell showing a willingness to push rates as high as needed to tame inflation, even as the central bank eyes a downshift to a slower pace of increases.
Elsewhere, the Bank of England will probably deliver a similar hike of 75 bps as it combats surging prices, an increase that would be the largest since 1989. The inflation rate in the UK rose back to 10.1% in September, a 40-year high.
On the political front, the appointment of Rishi Sunak as the new British Prime Minister restored some market confidence rattled by former Prime Minister Liz Truss’s mini-budget. The new government is now discussing tax and spending plans ahead of an economic statement planned for November 17th.
Dollar Index Extends Gains
Elsewhere, the dollar index extended gains to approach 113 on Thursday and is on track to move back to 20-year highs after the Fed said interest rates will be higher than previously expected and that it is very premature to talk about pausing the rate-hike cycle.
Markets got surprised by such a hawkish message and were actually expecting the Fed to eventually signal a pivot. At the same time, the US economy continues to show remarkable resilience, despite some sectoral slowdowns. READ: Fed, BoE, Rates Hike to Force CBN into Hawkish Mood
The inflation remains elevated and is holding at 40-year highs, the GDP rebounded in Q3 from a contraction in the previous two quarters and employment continues to rise. Traders now turn their attention to the nonfarm payroll report due Friday.
