Pound Drops Further on Interest Rate Speculation


Pound Drops Further on Interest Rate SpeculationThe pound extended its declines against the dollar for the seventh week, its longest losing streak since 2008, after data indicated that inflation grew less than analysts had expected, dampening speculation the Bank of England is moving closer to raising interest rates.

The sterling dropped 0.7 percent to trade at $1.6577 as of 5 pm in London after retreating to $1.6562, the weakest level since April 4. The pound rose 0.5 percent to 79.86 pence per euro on Friday.

The UK currency declined despite the minutes of BOE’s meeting in August revealing that two members voted to have the target interest rate increased.

“People got over excited about a very early rate hike by the Bank of England and now these rate-hike expectations have corrected and sterling has come under pressure,” Hans Redeker, a London-based head of global currency strategy at Morgan Stanley, told Bloomberg News. “When you look at short-term interest-rate volatility, that is never good for a currency in the long run.”

Though BOE policy makers Ian McCafferty and Martin Weale noted that the present economic circumstances warrant an increase in the bank rate, the Office for National Statistics reported on Aug. 19 that consumer-price inflation tumbled to 1.6 percent in the year through July, from 1.9 percent the previous month.

Yield on the 10-year gilt jumped 0.08 percentage point or eight basis points last week to 2.41 percent. This was the first weekly advance since the week through July 4. The 2.25 percent bond that matures in September 2023 fell 0.63 to 98.75. UK financial markets will be shut on Aug. 25 for a Bank Holiday.To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com