Pound Rallies, Gilt Yields Climb as BOE Policy Split Deepens

  • Two MPC members joined Forbes in her call for a rate increase
  • Market has to be more wary now of rate hike risks: MUFG

Foley Sees Pound Vulnerable Despite Soft Brexit Boost

The pound rose versus the euro and gilts fell after a surprise division within the Bank of England’s monetary-policy committee overshadowed its decision to leave the benchmark rate unchanged.

Sterling gained against most major currencies as three of eight members voted for an increase in rates, swelling the ranks of dissenters. Kristin Forbes was the lone member who sought an increase in last month’s meeting. The biggest division on interest rates in six years underscores concerns about inflation, which accelerated to the fastest in four years during May. Earlier on Thursday, the pound weakened as U.K. retail sales excluding auto fuel dropped 1.6 percent, the most this year.

“It’s a big surprise, isn’t it?” said Lee Hardman, a foreign-exchange strategist at MUFG. “Especially in the aftermath of the election, you would have thought that would make them more cautious. The market has to be more wary now of the risk of a rate hike.”

  • EUR/GBP falls 0.4% to 0.8764, having earlier reached 0.8807
  • GBP/USD was little changed at 1.2740 after earlier rising as much as 0.4%
  • Yield on 10-year gilts climb 8 bps to 1%, having fallen 10 bps Wednesday
  • BOE Governor Mark Carney is scheduled to speak at Mansion House Bankers and Merchants Dinner in London later Thursday, when he may provide hints on future policy
  • Follow our TOPLive blog on the BOE rate decision here
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