admin On Thursday, after the Bank of England held interest rates at 0.75%, sterling gained, defying money markets that had seen a 50% probability of a cut to help the economy.
To reinforce the pound’s gain and following the move, interest rate futures moved to almost price out a rate cut at the March meeting as well; however, money markets are still pricing in a quarter-point reduction by September.
Since last Friday, with 0.7% up sterling rose to $1.3109 on the day which is highest and against the euro, the currency gained 0.5% to 84.13 pence.
At the end of 2019, Britain’s economy struggled turning several policymakers to say this month they would vote for a rate cut unless data improved.
The BOE said, after December’s general election, economic momentum has shown signs of picking up, adding that signs of global stabilization also meant stimulus was not needed yet.
The benchmark FTSE 100 equity index fell 1.5% to session lows as the pound rose. The mid-cap FTSE 250 benchmark rose before heading towards its lows for the day, losing 0.8%
After meeting ten-year British government bond yields and rose to 0.53% which had dropped to three-and-a-half-month lows of 0.484% earlier.
According to analysts it is expected that sterling’s strength to be limited and more positive data on an economic rebound is needed before the currency could move much higher.
Investors are also cautiously moving as Britain officially leaves the European Union on Friday, setting the clock ticking on an 11-month deadline to reach a trade agreement with the EU. The BoE decision turning money markets to lower their expectations for a rate cut in March, the month its new governor, Andrew Bailey, takes over. They now see just a 16% probability of a 25 bps cut, versus 80% before the announcement.
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