Investment Insights – After the Federal Reserve slashed interest rates by 50 basis points the day before, the Bank of England kept its benchmark interest rate unchanged as expected and said it was in no rush to relax monetary policy. The pound exchange rate jumped to its highest level in more than two years.
On Thursday, September 19, the Bank of England (BOE) announced the latest interest rate decision results. The Bank of England Monetary Policy Committee voted 8:1 to stabilize interest rates at 5% and did not cut interest rates for the second time this year, in line with market expectations. .
“We should be able to gradually lower interest rates over time,” Bank of England Governor Bailey said in a statement.
Bailey said that path will depend on continued easing of price pressures, and keeping inflation low is critical. therefore,Policymakers need to be careful not to cut interest rates too quickly or too much.
The statement from the meeting showed that in the absence of substantial progress, a gradual lifting of policy restrictions is still appropriate. This statement reiterates policymakers’ preference for interest rate decisions and the need for policy to remain restrictive for a sufficiently long period of time.
The Bank of England’s cautious approach to future interest rate cuts may dampen market expectations that the central bank will shift to faster rate cuts later this year. After the resolution meeting,Money markets have reduced bets on how much the Bank of England will cut interest rates this year, with an expected rate cut of 41 basis points in December, compared with 50 basis points before the decision was announced.
At the same time, UK government bond prices fell, with the ten-year bond yield rising 3 basis points to 3.88% and the two-year bond yield rising 2 basis points to 3.92%.
Dean Turner, chief European economist at UBS, commented that the decision to keep the base rate unchanged is consistent with their long-term view that the central bank will take a cautious approach at the beginning of the interest rate cutting cycle. And with the economy showing few signs of stress, policymakers still have time.
Turner expects the Bank of England to cut interest rates for the second time this year in November. This is consistent with the basic consensus among economists and strategists in the market.
Pound jumps, set to be higher for year
Compared with the sharp interest rate cut by the Federal Reserve the day before, the Bank of England’s attitude towards interest rate cuts appeared more “hawkish”, which also caused the pound exchange rate to jump 0.8% in the short term after the BOE meeting and exceeded US$1.33. This is the first time since March 2022. For the first time in months.
As of writing, GBP/USD is currently trading at 1.3287, with the intraday gain slightly reduced to 0.57%.
Jordan Rochester, head of macro strategy at Mizuho International, said: “Everything here points to a gradual rate cut on a quarterly basis, at best.”GBP/USD will continue to perform well, with the pair expected to break above 1.34 by early October and 1.40 by the end of 2025.
At this point, today’s rebound extends sterling’s 2024 gains, making it the best-performing G10 currency so far in 2024.
Although the market expects the Bank of England to cut interest rates again in November, UK price pressures are expected to be more persistent and UK interest rates will remain relatively high.
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