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Sterling plunges 1% after Bank of England governor’s interest rate comments | Real Time Headlines

Bank of England Governor Andrew Bailey speaks to the media at a press conference at the Bank of England on August 1, 2024 in London.

Alberto Pezzali | Reuters

LONDON – Sterling slumped more than 1% against the dollar and euro after Bank of England Governor Andrew Bailey said on Thursday that more positive inflation data could lead to more aggressive interest rate cuts.

Sterling fell 1.16% to $1.3113 at 4:45 pm in London, inching closer to a loss of more than 1.3% but still hovering near its lowest intraday level since September 12. The largest daily decline.

Bailey tell the Guardian In an interview published on Thursday, he said the Bank of England could become “more aggressive” in cutting interest rates if inflation continues to improve.

He also said he was encouraged that cost-of-living pressures were not as persistent as previously thought, according to the Guardian.

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GBP to USD.

this Pound gets boost follow Bank of England monetary policy meeting On September 19, British policymakers struck a more hawkish tone than those of the Federal Reserve and the European Central Bank. This summer, Labor’s decisive victory in the early July general election also provided support to the index, with investors eyeing a period of political stability and economic recovery. The potential for pro-business reforms.

this upcoming budgetThe plans, due to be announced at the end of October, have caused some to question whether political leaders’ optimism about UK assets can be sustained Repeated suggestions Increased tax revenue and greater public spending discipline are needed to close the budget gap.

Meanwhile, the pound fell 1.1%. Sterling fell to its lowest level since September 20 against the euro on Thursday.

Although several analysts have raised their expectations for the pace of rate cuts by the European Central Bank this year, Eurozone and German Inflation data this week were all below 2%.

Teams including Bank of America Global Research and Moody’s Analytics said they now expect the ECB to cut interest rates by 25 basis points at its upcoming October meeting, with a follow-up cut at its next and final meeting of the year in December. BOA Global Research said it now expects the European Central Bank’s deposit rate to reach 2% by June 2025, a quarter earlier than previously forecast.

The Bank of England kept key interest rates unchanged in September after lowering them by 25 basis points to 5% in August. At its September meeting, the central bank’s Monetary Policy Committee expressed concerns about service sector inflation and wage growth, although Headline inflation hovers near 2% target.

Money market pricing on Thursday suggested two more 25 basis point rate cuts were likely at the Bank of England’s remaining meetings this year.

“A simple explanation for the governor’s comments is that the MPC is now likely to take action if inflation unexpectedly rises, rather than back-to-back rate cuts in November and December. Previous guidance suggested that the burden of proof would be on an unexpected rise in inflation. Deutsche Bank foreign exchange strategist Shreyas Gopal said in a research note that this shift away from the “gradual” pace of easing is detrimental.

Francesco Pesole, FX strategist at ING, said the “sterling correction” could extend to the 1.3 mark in the short term as “possibly a longer-term dovish repricing” meets higher dollar swap rates, he added.

Inflation risk

Jane Foley, senior FX strategist at Rabobank London, said in a note on Thursday that Bailey’s recent comments on the possibility of more aggressive interest rate cuts “deeply shaken” support for the pound, but noted that the interview The Governor of the Bank of China also discussed potential risks to the pound.

Bailey told the Guardian: “Geopolitical concerns are very serious … there are obviously pressures and the real question is how they interact with some markets that are still quite nervous.”

Bailey said it had been helped so far that the central bank had not had to deal with a sharp rise in oil prices, but it was watching the potential impact of the situation “extremely closely.”

He continued: “My sense from all the conversations I’ve had with my counterparts in the region is that, right now, we are firmly committed to maintaining market stability.”

Rabobank’s Foley said on Thursday: “While the market is clearly focused on the (rate cut) part of Bailey’s statement, inflation risks will remain key. Even if the potential impact of escalation in the Middle East is ignored, UK inflation risks still indicate : The Bank of England may cut interest rates more slowly than several other central banks.

—CNBC’s Ganesh Rao contributed to this article.

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