Bank of England Governor Andrew Bailey gestures and addresses the media during a press conference at the Bank of England on August 1, 2024 in London.
Alberto Pezzali | via Reuters
LONDON – The British pound weakened against the US dollar and euro on Thursday after Bank of England Governor Andrew Bailey suggested the central bank could move towards a more aggressive approach to cutting interest rates if inflation data turns more positive. It fell more than 1%.
As of 2pm in London, the pound was down 1.17% to $1.3112, slightly less than a loss of more than 1.3%, but still at its lowest intraday level since September 12th. The decline puts the pound on track for its steepest one-day decline against the dollar in more time. 20 months, according to CNBC’s LSEG data calculations.
In an interview with the Guardian published on Thursday, Governor Bailey said the BoE could become “a little more aggressive” in its rate-cutting approach if inflation conditions remained favorable.
He also said it was encouraging that the cost of living pressure was not as persistent as previously thought, according to the Guardian.
Pounds vs. Dollars.
Sterling rose after the BoE’s monetary policy meeting on September 19, as British policymakers struck a more hawkish tone than the US Federal Reserve and the European Central Bank. Investors also focused on a period of political stability and the potential for pro-business reforms, with Labor’s decisive victory in the general election in early July also gaining support over the summer.
The next Budget, due at the end of October, could sustain optimism around Britain’s wealth, with political leaders repeatedly suggesting that higher taxes and discipline in public spending are needed to plug budget shortfalls. There were already some voices questioning whether this was the case.
Meanwhile, the pound fell by 1.1%. The decline puts the pound on track for its steepest daily decline against the dollar in more than 20 months, according to CNBC calculations based on LSEG data.
This comes despite several analysts upgrading their forecasts for the European Central Bank’s rate cuts this year after inflation in both the euro zone and Germany fell below 2% this week. Ta.
Bank of America Global Research and Moody’s Analytics expect the ECB to cut interest rates by 25 basis points at its October meeting, with further rate cuts expected at its next meeting in December. They are one of the teams that have announced that they are . BOA Global Research said it expects the ECB’s deposit rate to reach 2% by June 2025, a quarter ahead of its previous forecast.
The Bank of England cut its key policy interest rate by 25 basis points to 5% in August, then left it unchanged in September. At its September meeting, the central bank’s Monetary Policy Committee expressed concern about services inflation and wage growth, even as headline inflation remained near the 2% target.
Money market pricing on Thursday suggested the BOE is likely to cut rates by two more 25 basis points this year in its remaining meetings.
“One simple interpretation of the Governor’s comments is that the MPC’s failure to implement consecutive interest rate cuts in November and December could lead to an upside surprise in inflation. It was suggested that the burden of proof was on inflation.” Shreyas Gopal, foreign exchange strategist at Deutsche Bank, said in a research note that such a shift away from a “moderate” pace of easing would lead to a downside.
Francesco Pesole, FX strategist at ING, said the “pound correction” could widen to £1.3 in the short term as “probably a long period of dovish price increases” would be matched by higher US dollar swap rates. He added that there is.
inflation risk
Jane Foley, senior currency strategist at Rabobank London, said in a note on Thursday that Mr Bailey’s recent comments on the possibility of more aggressive rate cuts had “significantly shaken up” support for the pound, but in an interview It also noted that the Governor’s discussion of potential risks to sterling was also raised. Inflation is forecast due to soaring oil prices due to the recent escalation of tensions in the Middle East.
Mr Bailey told the Guardian: “Geopolitical concerns are very serious…There are obviously stresses and the real question is how do they interact with regional markets, which are still quite tense. Raft,” he said.
Bailey said the central bank had so far been helped by not having to deal with a large rise in oil prices, but was monitoring the situation “very closely” for any potential impact. said.
“My sense from all of our conversations with stakeholders in the region is that there is a strong commitment to maintaining market stability at this time,” he continued.
Rabobank’s Foley said Thursday: “Markets are clearly picking up on the (rate cut) part of (Bailey’s) statement, but inflation risks will still be key. The potential impact of Middle East escalation has been overlooked. “Even so, inflation risks remain indicative for the UK.” “The central bank may be slower to cut rates than some other banks.”
—CNBC’s Ganesh Rao contributed to this article.