The pound has weakened against both the dollar and euro as the market reacts to comments made by the Bank of England’s chief economist, Huw Pill. Pill suggested that interest rate cuts could potentially occur around the middle of 2024. The pound was down 0.4% against the dollar, reaching $1.2251, and fell from a near two-month high of $1.2428 on Monday.
The decline in the pound is partly due to the recent rebound of the US dollar, but sterling also saw a slight dip against the euro. The euro was at 87.05 pence, up from Monday’s three-week low of 86.5 pence.
Investors are closely examining Pill’s remarks, considering the current financial market pricing. The market currently indicates a first interest rate cut to Bank Rate in August 2024, which Pill described as “not totally unreasonable.” However, Bank of England governor Andrew Bailey emphasized on Wednesday that it is too early to discuss rate cuts.
ING FX strategist Francesco Pesole stated, “The pound is pretty interesting… openly speaking about rate cuts is not something central bankers are doing.” He also suggested that sterling may face pressure due to the cautious market response in pricing in rate cuts. It is anticipated that there is potential for further adjustment in Bank of England rate expectations.
Presently, the market fully expects a 25 basis point rate cut by the Bank of England in August, with roughly a two-thirds chance of this occurring in June. Before Pill’s comments, an August rate cut was seen as likely but not fully priced in.
In addition to Pill’s remarks, an industry survey released on Wednesday revealed a slowdown in pay growth in October, resulting in an increase in job seekers due to rising redundancies. Wage growth is a crucial aspect considered by the Bank of England when assessing inflation and making rate policy decisions.
Bailey expressed optimism that the Bank of England would be able to bring inflation back to 2% by late 2025, aligning with the bank’s recent forecast.
These developments in the currency market and the concerning survey results suggest a mixed economic outlook for the United Kingdom. Investors and the general public will be closely watching for any further indications from the Bank of England regarding its stance on interest rates and the potential impact on the economy.
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )