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Pound Jumps as Markets Bring Forward BOE Rate-Rise Expectations

Bloomberg logoBloomberg 14/09/2017 Charlotte Ryan
BC-POUND © Charlotte Ryan BC-POUND

The pound rose against all of its Group-of-10 peers as the Bank of England said it sees scope for stimulus reduction in coming months, spurring markets to bring forward expectations for a rate increase.

Sterling rose as much as 1.0 percent to $1.3337 following the announcement of its policy decision, despite members of the Monetary Policy Committee voting by seven members to two to keep the key interest rate at a record low 0.25 percent. It also strengthened against the euro, touching 89.11 pence per euro.

Related: Bank of England hints at rate rise 'within months'

The implied probability of a 25 basis-point-rate increase by November this year rose to 45 percent following the announcement compared to 40 percent just beforehand, according to MPC-dated SONIA. A rate increase is fully priced in for February 2018, compared to around mid-2018 previously.

Sterling had made gains this week on expectation of a more hawkish tone from the central bank following a pickup in inflation data on Tuesday. That was tempered by jobs data on Wednesday showing low unemployment failing to feed through to faster wage growth, but the bank’s comments appeared to suggest it was willing to look past sluggish wages.

“The comment that most see scope for stimulus reduction in the coming months suggests it was a closer call than the 7-2 vote would suggest,” said Royal Bank of Canada currency strategist Adam Cole.

NOW READ: Could the falling pound turbocharge the UK economy?

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