FX round-up: More hawkish BoE sees sterling shoved higher

Digital Look Sharecast | 15 Jun, 2017 17:49 - Updated: 17:49 | | |

Gherkin, City of London and EU flag by Descrier

Sterling got a firm shove higher thanks to a more-hawkish-than expected leaning by Bank of England's policy makers in holding the benchmark rate and QE unchanged.

On the crosses, sterling enjoyed a wall-of-green performance, although the icebergs of Brexit, a hung parliament and rising inflation continued present.

BoE policymakers voted 5-3 in favour of holding rates and retaining QE at £435bn. Views were for a 7-1 voter split in the Monetary Policy Committee.

At 16:55 BST, sterling was up 0.12% to $1.2766, this rise somewhat muted by a resurgent dollar after the US Federal Reserve also presented itself more hawkish than expected last night.

The British currency was also up on the euro by 0.67% to €1.1444. It gained on the aussie, loonie, kiwi, rand and yen, too. But, it remained a shadow of its pre-Brexit referendum self.

Deutsche Bank Research chief economist Mark Wall said MPC's surprisingly hawkish outcome does not yet mean a rate hike is more likely than not.

"How this 5-3 split resolves itself will depend on three things."

These were economic momentum, inflation overshoot and whether or not the replacements for MPC members Kristin Forbes and Charlotte Hogg were policy hawks, said Wall.

IG market analyst Joshua Mahony observed that the three dissenters on the MPC had focused on their core mandate, which was price stability.

"Despite the sterling rally, there is little to worry about quite yet, for the loss of rate hike voter Kristen Forbes will likely bring us back to 6-2 next time out."

Sterling's BoE-driven rise after midday followed weakness after the Fed decision last night, and on disappointing UK retail sales data out mid-morning.

"As it stands, five members voted to keep rates on hold, but today’s vote shows the gap is narrowing," said David Madden, market analyst at CMC Markets UK.

Turning to the dollar, it, too, made gains on most key crosses, rising on the aussie, loonie, kiwi, rand, yen and euro.

Last night, the Fed raised its benchmark rate and flagged a reduction in its balance sheet.

"The EURUSD is being driven lower by the strength of the greenback," said Madden.

Fed Chair Janet Yellen unexpectedly lowered the inflation forecast and increased the growth outlook. In effect, said Madden, she was saying the weak inflation that the US was experiencing was not going to hold the Fed from further tightening.

"Traders were quick to exit their long (EURUSD) positions when the Fed reduced their CPI forecast, and announced that the balance sheet reduction would start this year," said Madden.

"The hawkish announcement by the Fed caught dealers by surprise, and the euro is being hit hard by it."

More news

15:48 Utilitywise takes financial hit due to energy under-consumption

Independent utility cost management consultancy Utilitywise announced on Thursday that it had been made aware of “apparent material levels of under-consumption” in certain contracts placed with one of the major energy companies dealt with by the group.

16:06 Supergroup posts FY profit rise early after employee theft

Supergroup has been forced to release some highlights from its preliminary results for the year to 29 April as an external party may have had sight of a draft of the numbers following a random theft from an employee.

15:41 Wey Education launching online language school

Educational services provider Wey Education announced on Thursday that it was planning to expand its activities by opening an online language school using the IT platform newly developed for its mainstream online schools business, in September.

15:30 FTSE 250 movers: DS Smith rallies on acquisition; JD Sports out of fashion

London's FTSE 250 was down 0.8% to 19,312.45 in afternoon trade.

15:25 FTSE 100 movers: Banks and miners rally; Micro Focus hit by CS note

London's FTSE 100 was down 0.4% to 7,359.69 in afternoon trade.

14:35 Sector movers: HSBC lead banks higher after US unit passes stress tests

Banks pushed higher, tracking gains in their North American peers overnight on the heels of the latest US central bank stress test results and as government bond yields around the world continued their march higher.

14:16 Walgreens ditches Rite Aid acquisition

Walgreens Boots Alliance has ditched plans to buy rival Rite Aid, agreeing instead to buy 2,186 stores from the company and three distribution centres and related inventory for $5.2bn in cash.

13:41 Ilika granted three US patents

Solid-state battery technology and materials developer Ilika announced the grant of three patents covering catalysts for hydrogen fuel cells in the US on Thursday.

13:35 Initial US weekly jobless claims edge higher

Layoffs in the US continued to hold at record low levels last week, the latest set of official weekly figures revealed.

13:29 German CPI inflation defies forecasts for a fall in June

Inflation in Germany defied forecasts that it would retreat in June.