GBP
October’s UK construction PMI index rose in October to 50.8 from 48.1 previously, nudging just into expansion territory but not enough to bolster weak sentiment in the sector. Sterling ebbed across the board in advance of the Bank of England rate hike, now 0.50% from 0.25%. Although widely expected, the vote was not unanimous. MPC members Cunliffe and Ramsden highlighted sluggish wage growth as their reason for dissenting. So why didn’t the Pound rise?
Significantly, the monetary policy statement omitted repetition of references to the risks of interest rates rising more sharply than expected by markets. In fact, the message was that any future increases would be “at a gradual pace and to a limited extent”, potentially two more hikes over three years. The overtly dovish message following all the previous hype meant investors raced to reverse bets and Sterling suffered.
Sterling dipped sharply lower as bond yields declined and the Euro tested the 1.1235 area (1.8% drop) as the Pound dipped to lows below 1.3100 against the Dollar (1.3% drop).
On a lighter note, Governor Carney was also optimistic that wages growth would accelerate and that the worst of the income squeeze had already been seen. The Quarterly Inflation Report estimated inflation was likely to peak this month at 3.2% before the rate hike took effect and would gradually drift back to the 2% target.
Sterling was unable to gain any subsequent relief this morning trading near 1.3050 vs the Dollar and the Euro at 1.1200. |
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