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HomeBusinessThe pound is still wobbly after yesterday's interest rate hike

The pound is still wobbly after yesterday’s interest rate hike

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The pound weakened against the dollar again in early trading, after it plummeted in the aftermath of yesterday's Bank of England interest rate hike.

Sterling edged 0.1 per cent lower against the dollar, to $1.3049, although it was flat against the euro, at €1.1206.

The currency fell by two cents against the dollar yesterday, after the Bank of England's monetary policy committee (MPC) raised rates to 0.5 per cent, the first rate hike in the UK in almost a decade.

After "as dovish hike as imaginable", according to Connor Campbell, financial analyst at SpreadEx, currency traders were put off by signals from the MPC that another rate hike is unlikely to come anytime soon.

"There was no indication that further hikes are on the near-term horizon, a fact reflected in the big drop in sterling and gilt yields in the immediate aftermath of the announcement," added Chris Scicluna, of Daiwa Capital Markets.

"The market is now pricing-in the next hike for August next year. Indeed, the minutes and policy statement are possibly the most downbeat ever to accompany a rate increase. In particular, [the words] 'all members agreed that any future increases in bank rate would be expected to be at a gradual pace and to a limited extent'.

"And despite some brave assumptions of accelerating wage growth and a smooth Brexit (presumably embodying a sufficiently long transition period during which the UK remains a member of the Single Market and an EU Customs Union), the BoE still expects UK GDP growth to remain insipid over the forecast horizon, while inflation is expected to fall back towards (but still remain marginally above) the target by the end of the MPC’s forecast."

Read more: Interest rates raised – are there more hikes to come?

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