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Pound Plunges As BoE Signals Recession Threat

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The pound slumped against its major counterparts in the European session on Thursday, after the Bank of England raised its key rate for the fourth consecutive meeting, but warned of a contraction in the economy next year amid cost pressures.

Policymakers led by Governor Andrew Bailey decided to raise the key interest rate, the bank rate, to 1.00 percent from 0.75 percent.

Most members judged that some degree of further tightening in monetary policy may still be appropriate in the coming months.

The MPC will continue to review developments in the light of incoming data and their implications for medium-term inflation, according to the accompanying statement.

UK GDP growth is expected to slow sharply over the first half of the forecast period, reflecting the significant adverse impact of the sharp rises in global energy and tradable goods prices on most UK households' real incomes and many UK companies' profit margins, the bank said.

The BoE maintained its forecast for economic growth at 3.75 percent for this year. For 2023, the economy is projected to contract by 0.25 percent versus prior estimate of 1.25 percent growth.

Survey results from S&P Global showed that the UK service sector expanded at a stronger pace in April although increased costs and the war in Ukraine combined to contain the pace of expansion.

The Chartered Institute of Procurement & Supply final services Purchasing Managers' Index came in at 58.9 in April, which was above the flash score of 58.3 but down from 62.6 in March.

The pound has been trading in a negative territory against its major rivals in the Asian session.

The pound fell 2 percent against the greenback, touching nearly a 2-year low of 1.2361. The pair had finished Wednesday's deals at 1.2623. The pound is seen finding support around the 1.20 mark.

The pound dropped to an 8-day low of 160.46 against the yen, down by 1.9 percent from a 3-day high of 163.57 seen at 6:15 pm ET. The pair was valued at 162.99 when it ended trading on Wednesday. The pound may face support around the 155.00 region, if it falls again.

The pound touched a 6-day low of 1.2114 against the franc, falling from nearly a 2-week high of 1.2299 it touched at 6:15 pm ET. At Wednesday's close, the pair was worth 1.2270. Further fall in the pound may find support around the 1.20 mark.

The pound lost 1.8 percent against the euro, hitting a 4-1/2-month low of 0.8546. The pound had ended yesterday's trading session at 0.8399 against the euro. The pound is likely to challenge support near the 0.88 mark.

Data from Destatis showed that German factory orders declined more-than-expected in March, reflecting the impact of the war in Ukraine on industrial activity.

Factory orders posted a monthly fall of 4.7 percent in March, data released by Destatis showed Thursday. This was faster than February's 0.8 percent decrease and the 1.1 percent decline expected by economists.

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