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Sterling Drops as BOE Signals Sustained Pause in Rates

Posted by Joseph Trevisani on Feb 2, 2017 6:23:46 PM

The pound lost the most against the dollar in three weeks, ending a two day rally, after the Bank of England indicated that rate policy will be on hold for the immediate future.

Sterling lost 1.1 percent from yesterday’s close finishing at 1.2520 in New York just over its 1.2516 low for the day.  Most of the decline came in the hour immediately after the policy announcement from the Monetary Policy Committee (MPC).  

The pound had initially spiked higher to 1.2698 as the MPC voiced concern that inflation was closer to the limits of tolerance, suggesting that a rate hike might be necessary.   But other comments in the bank statement that there was slacker in the economy than anticipated and that the forecast for inflation at 2.8 percent was well within the general market expectation made it clear that the MPC was far from raising rates. When combined with the potential economic and policy stresses from the Brexit negotiations, the likely bank response will be lower rates for longer. 

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Thomson/Reuters

gbp 1 min feb 2.png

 

 

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