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Pound Jumps, Gilts Tumble as Bank of England Sounds Hawkish

Bloomberg logoBloomberg 08/02/2018 Charlotte Ryan
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The pound snapped four days of losses and gilts slumped as the Bank of England’s ‘Super Thursday’ statement provided a hawkish signal for interest-rate expectations.

Sterling jumped nearly 1 percent, the most in two weeks, after the BOE said policy tightening may be needed sooner and more than expected. Money markets are now pricing a 25-basis-point increase to the bank rate in August, compared with earlier expectations for a hike in November.

a screenshot of a video game: Pound Rallies © Provided by Bloomberg LP Pound Rallies

“It feels like they are validating market pricing,” said Alan Clarke, an economist at Scotiabank Europe Plc. The surge in the pound won’t necessarily be short-lived, he added.

The pound gained 0.6 percent to $1.3958 by 12:25 p.m. in London, after climbing nearly 1 percent above $1.40 soon after the policy announcement. The yield on U.K. 2-year and 10-year government bonds jumped five basis points, to 0.68 percent and 1.60 percent respectively. Governor Mark Carney gives a press conference at 12:30 p.m.

NOW SEE: Bank of England warns of rate rises

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