Markets

Pound jumps as markets bring forward BoE rate-rise expectations

London – The pound rose against all of
its Group-of-10 peers as the Bank of England (BoE) said it sees scope for
stimulus reduction in coming months, spurring markets to bring forward
expectations for a rate increase.

Sterling rose as much as 1.0% to $1.3337 following the
announcement of its policy decision, despite members of the Monetary
Policy Committee voting by seven members to two to keep the key interest
rate at a record low 0.25%. It also strengthened against the
euro, touching 89.11 pence per euro.

The implied probability of a 25 basis-point-rate increase by November
this year rose to 45% following the announcement compared to 40% just beforehand, according to MPC-dated SONIA. A rate increase
is fully priced in for February 2018, compared to around mid-2018
previously.

Sterling had made gains this week on expectation of a more hawkish
tone from the central bank following a pickup in inflation data on
Tuesday. That was tempered by jobs data on Wednesday showing low
unemployment failing to feed through to faster wage growth, but the
bank’s comments appeared to suggest it was willing to look past sluggish
wages.

“The comment that most see scope for stimulus reduction in the coming
months suggests it was a closer call than the 7-2 vote would suggest,”
said Royal Bank of Canada currency strategist

Adam Cole.

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