The British pound has come under pressure today against its US counterpart after the latest interest rate decision from the Bank of England, which was followed up by a less than hawkish monetary statement.
At 6.17pm (GMT), the British currency was trading at $1.2553 down from $1.2695 at close of trading yesterday.
Although no changes in rates from the BOE were expected by the market, traders predicted that the monetary statement from the bank would be hawkish, and include hints about upcoming rate rises to curb inflation, which they said is starting to put the squeeze on households.
Policymakers noted that wage growth is set to remain stagnant, a rising pound should keep prices under control, and even if inflation goes over the 2 percent target rate, this could be tolerated for some time
In the end, the BOE remained neutral on future rate moves and said monetary policy could go either way now, which caused a sharp selloff in the pound.
"Economic growth remains robust and the weak Pound will continue to drive up inflation, potentially up to 2.8% by this time next year. In ordinary times, this would soon send the Bank reaching for the rate rise lever. But today’s press conference revealed that this prospect remains both distant and nebulous, and duly gave an extra shove to the Pound’s rollercoaster car.” noted David Lamb, head of dealing at FEXCO Corporate Payments
Luzdary Hammad, research analyst at FXTM noted,
“Markets were expecting the BoE to tilt to the hawkish camp amid the accelerating inflation, but the central bank seemed to be in no rush to take action and as such it has left sterling bullish investors empty handed.”