Pound Appreciates As BoE Hikes Rate Unexpectedly

pound jun20 16dec21 lt

The pound moved higher against its key counterparts in the European session on Thursday, as the Bank of England lifted its key interest rate to control a surge in inflation.

The committee unanimously decided to maintain the bond purchase programme at GBP 895 billion.

The MPC will review developments, including emerging evidence on the implications for the economy of the Omicron variant, as part of its forthcoming forecast round ahead of the February 2022 Monetary Policy Report.

The committee said some modest tightening of monetary policy over the forecast period is likely to be necessary to meet the 2 percent inflation target sustainably.

Bank staff expects inflation to remain around 5 percent through the majority of the winter period, and to peak at around 6 percent in April 2022. Inflation is still expected to fall back in the second half of next year.

Flash survey results from IHS Markit showed that the UK private sector posted a sharp slowdown in December amid tighter pandemic restrictions and renewed business uncertainty.

The flash Chartered Institute of Procurement & Supply composite output index fell more-than-expected to 53.2 in December from 57.6 in November. The expected score was 56.4.

The currency showed mixed trading against its major opponents in the Asian session. While it rose against the yen, it held steady against the greenback and the franc. Versus the euro, it fell.

The pound firmed to more than a 2-week high of 1.3369 against dollar from Wednesday's close of 1.3258. The pound is seen finding resistance around the 1.37 mark.

The pound appreciated to 152.63 against the yen, its highest level since November 26. The pair was valued at 151.19 when it ended trading on Wednesday. Immediate resistance for the pound is seen around the 155.00 level.

Data from the Ministry of Finance showed that Japan posted a merchandise trade deficit of 954.8 billion yen in November.

That was way short of forecasts for a shortfall of 675 billion yen following the downwardly revised 68.5 billion yen deficit in October (originally a 67.4 billion yen deficit).

The pound climbed to its strongest level since November 29 against the franc, at 1.2359. At Wednesday's close, the pair was worth 1.2248. Further rise in the pound may see resistance around the 1.25 area.

The Swiss National Bank maintained its expansionary monetary policy, as widely expected.

Policymakers of the central bank decided to retain the policy rate and interest on sight deposits at the SNB at -0.75 percent.

The pound was up against the euro, at more than a 2-week high of 0.8454. The pound had ended yesterday's trading session at 0.8509 against the euro. Next key resistance for the pound is seen around the 0.83 level.

Flash survey results from IHS Markit showed that Eurozone private sector growth eased to a nine-month low at the end of the year as rising coronavirus infection rates hit service sector activity, offsetting improved manufacturing growth.

The flash composite output index came in at 53.4 in December, down from 55.4 in November. The reading was also below the expected level of 54.0. Nonetheless, a score above 50.0 indicates expansion.

Looking ahead, U.S. industrial production for November will be released in the New York session.

For comments and feedback contact: editorial@rttnews.com

Market Analysis

Follow RTT